All eyes will be on the Federal Reserve next week to see if it delivers a much-debated interest rate cut after anticipation of a move sparked rate-cut fever and a blazing rally on Wall Street.
Investors will likely be treading carefully in coming days amid a slew of potential minefields and nagging worries about corporate corruption, all of which could make the market ripe for a pullback after some stellar gains.
"It's been a pretty impressive rally," said Rich Nash, chief market strategist at Victory Capital Management. "We're going to have to give some of this back."
The blue-chip Dow Jones industrial average and broad Standard & Poor's 500 index racked up a third straight week of gains, as investors speculated that lower interest rates could be in the cards and snapped up beaten-down shares.
But the market may have set itself up for disappointment if the Fed does not cut rates, which could take the fizz out of the rally, analysts said.
Concerns about Corporate America's credibility have mounted steadily, and investors may be dodging bullets with the looming Aug. 14 deadline for executives to take a "clean-book" pledge.
The flood of quarterly earnings reports has slowed to a trickle, but a few marquee technology and retail names, such as Dell Computer Corp. (DELL) and Wal-Mart Stores (WMT) could grab the spotlight when they report next week.
TO CUT OR NOT TO CUT
Reports earlier this month indicating the U.S. economic recovery might be shaky helped fuel speculation the Fed might have to ride to the rescue by lowering borrowing costs again.
Those expectations were heightened after Lehman Brothers and Goldman Sachs said they expect the Fed to cut rates by 75 basis points to 1 percent by year-end. On Friday, Morgan Stanley's chief U.S. economist said he expects a half-point rate cut Tuesday.
However, Morgan Stanley's U.S. strategist and stocks guru Byron Wien said on CNBC late Friday that the Fed does not need to lower interest rates further and that a cut could give the impression the central bank is worried about the economy.
Many economists expect the Fed to leave rates unchanged next week. Out of 21 dealers recently polled by Reuters, 17 expect no change in rates for the rest of the year.
The chances of an Aug. 13 easing are less than one in five, according to federal funds futures prices, which are used as a gauge of market expectations. Given those odds, stock investors hoping for a rate cut could be disappointed.
"We will get a knee-jerk selloff that will be Wall Street saying to the Fed, 'We're disappointed that you don't see what we see,"' Charles Payne, a market analyst at Wall Street Strategies, said of possible reaction if there is no cut.
But it would not take long for the market to realize that no news might be good news when it comes to cuts, Payne said. "We do want an economy where the Fed doesn't have to cut rates, and maybe that message will resonate one or two days after."
Analysts said the most the market can expect is that the Fed might acknowledge in its post-meeting communique that the risks to the economy have shifted toward economic weakness and away from inflation.
Data including July retail sales and industrial production and the consumer price index will be in the spotlight as investors search for clues to the economy's health.
Investors will also be eyeing housing starts and consumer sentiment, both due Friday, for signs that housing, which has been an area of strength in the economy, is holding up, and that consumers are not ready to rein in spending.
Corporate credibility will also stay in the forefront as many companies run up against the deadline for executives to pledge that their books are on the up-and-up.
Nearly 1,000 firms are required by the U.S. Securities and Exchange Commission to certify that their recent financial statements are accurate. As of midday Friday, 112 companies had signed oaths out of the 947 required to do so, according to the SEC's web site.
Wall Street is worrying that making executives sign on the dotted line could force companies to restate results, wreaking havoc on earnings expectations, and that those who cannot or will not sign will be punished by investors.
"There will definitely be a focus on companies that don't certify," said Nat Paull, a portfolio manager at New Amsterdam Partners.
But executive pledges designed to help weed out Corporate America's bad apples may not be enough for investors.
"I don't think a reasonable investor can say, 'Alright this CEO and CFO have certified their statements, they're clean," Paull said. "You still have to look and see what's going on in the statements."
The barrage of events next week will mix a volatile cocktail for a market still uncertain about the economy and, by extension, corporate earnings. Trading volumes will also begin to taper off as the market slips into its late-August lull.
"All these variables can swing the market 100, 200 points either way," said James Volk, director of institutional trading at D.A. Davidson & Co., adding that the fundamental picture has changed little since the market's recent plunge to multi-year lows.
The Dow Jones Industrial Average jumped roughly 8 percent Tuesday to Thursday and ended the week up 5.2 percent, its best one-week gain since last autumn.
The broad Standard & Poor's 500 index finished the week up 5.1 percent, and the technology-packed Nasdaq Composite ended with a gain of 4.7 percent, reversing after five weeks of decline.
Retailers, however, will likely take front stage with results expected from discount retailer Wal-Mart, J.C. Penney Co. Inc. (JCP), Federated Department Stores Inc. (FD), Nordstrom (JWN), Kohl's Corp (KSS), Target Corp. (TGT) and Tiffany & Co. (TIF).
Operating earnings at the companies in the S&P 500 index are expected to show a slim gain of 0.9 percent in the second quarter, according to research firm Thomson First Call.
About 91 percent of the S&P 500 companies have issued results so far this reporting period, and out of those, 60 percent have beaten analysts' estimates, 25 percent were on target, and 15 percent fell short of expectations.