With earnings momentum on the rise, the S&P 500 seems to have few hurdles ahead as it continues to power higher, its all-time high a not-so-distant goal.
The U.S. equity benchmark closed the week at a fresh five-year high on strong housing and labor market data and a string of earnings that beat lowered expectations. Sector indexes in transportation, banks and housing this week hit historic or multiyear highs as well.
Michael Yoshikami, chief executive at Destination Wealth Management in Walnut Creek, California, said the key earnings to watch for next week will come from cyclical companies. United Technologies reports on Wednesday while Honeywell is due to report Friday.
"Those kind of numbers will tell you the trajectory the economy is taking," Yoshikami said.
Major technology companies also report next week, but the bar for the sector has been lowered even further.
Chipmakers like Advanced Micro Devices, which is due Tuesday, are expected to underperform as PC sales shrink. AMD shares fell more than 10 percent Friday after disappointing results from its larger competitor, Intel. Still, a chipmaker sector index posted its highest weekly close since last April.
Following a recent underperformance, an upside surprise from Apple on Wednesday could trigger a return to the stock from many investors who had abandoned ship. Other major companies reporting next week include Google , IBM, Johnson & Johnson and DuPont on Tuesday, Microsoft and 3M on Thursday and Procter & Gamble on Friday.
CASH POURING IN, HOUSING DATA COULD HELP
Perhaps the strongest support for equities will come from the flow of cash from fixed income funds to stocks.
The recent piling into stock funds – $11.3 billion in the past two weeks, the most since 2000 – indicates a riskier approach to investing from retail investors looking for yield.
"From a yield perspective, a lot of stocks still yield a great deal of money and so it is very easy to see why money is pouring into the stock market," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
"You are just not going to see people put a lot of money to work in a 10-year Treasury that yields 1.8 percent."
Housing stocks, already at a 5-1/2 year high, could get a further bump next week as investors eye data expected to support the market's perception that housing is the sluggish U.S. economy's bright spot.