US stocks look set to glide higher next week, as long as strong fourth-quarter profit reports keep on coming.
But if key companies presenting their scorecards next week don't follow through with upbeat forecasts for the rest of the year, investors might look to cash in their gains as the major market indexes crest long-time highs.
"If the current recovery in earnings has legs and continues to be strong, we are only in the early phases of a stock market re-covery," said Gordon Fowler, chief investment officer at money manager Glenmede Trust Co, in his latest outlook.
Stocks have soared since last March when the economy showed solid signs of revival and companies got back into the habit of posting higher profits.
But whether that continues depends on more economic growth and reassurance from corporations that higher profits are here for another year at least.
"Companies need not only to beat the current quarter estimate, but lift guidance for the first quarter or full-year 2004 in order to gain investor attention," said Frederic Dickson, chief market strategist at fund firm D.A. Davidson & Co, in his latest stock market commentary.
The shape of the market will come into focus quickly on Tuesday with an avalanche of earnings.
Dow components Citigroup, Johnson & Johnson, 3M and United Technologies are scheduled to report on Tuesday, followed by technology bellwethers Computer Associates and eBay and financial giant J.P. Morgan on Wednesday.
Good earnings are widely expected. But the battle between the optimistic bulls and pessimistic bears is now over what will happen in 2005, according to Fowler.
"There is limited value in knowing that the near-term earnings outlook is good," said Fowler. "Before this year has barely even begun, the market will start to discount economic and earnings events anticipated in 2005."
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