The Dow industrials could hit 11,000 this week as investors bet the U.S. labor market had a significant turnaround in March, showing the economic recovery is in good shape.
The Dow and the S&P 500 are at their highest in nearly 18 months and the expected repositioning before Wednesday's end of the quarter could provide further support. With the Dow closing at 10,850.36 on Friday, it would need to rise 1.4 percent -- a tad less than 150 points -- to reach 11,000.
But with benchmark U.S. Treasury yields approaching 4 per cent, investors may prefer the relative safety of U.S. debt instead of continuing to throw money at a stock market that has risen steeply for more than a year.
Economists expect data on Friday to show the economy created about 190,000 jobs in March, but stock investors will have to be brave enough to bet on that confirmation ahead of the data, since the market will be closed for the Good Friday holiday.
Wednesday's private-sector jobs data and Thursday's jobless claims could support those willing to step out on a limb.
"Obviously, the jobs number is the most important thing" this week, said Phil Orlando, chief equity market strategist at Federated Investors, in New York.
"You are going to get this delayed reaction (the following) Monday, unless the claims numbers are just so terrific, that you get some pre-buying ahead of Friday."
Stocks closed higher for a fourth straight week, around levels not seen since September 2008, as recent uncertainty stemming from fiscal problems in some European countries and the healthcare overhaul receded.
A European Union agreement on a safety net for Greece restored investor confidence, but that net could prove small if fiscal burdens bog down other EU members like Portugal, whose debt rating was cut on Wednesday by Fitch.
"Clearly, there is the potential for there to be fiscal issues with other countries in Europe, but the Europeans have now set a precedent that they intend to backstop any negative fiscal situations," said Ken Farsalas, portfolio manager at Oberweis Asset Management in Lisle, Illinois.
Over the weekend, Lucas Papademos, the vice president of the European Central Bank, told Reuters on Saturday the EU's latest agreement on Greece should ease concerns about a sovereign debt crisis in Europe.
Sentiment, nonetheless, remains downbeat. Friday's stock market sell-off followed news that a South Korean naval ship had sunk, suggesting risk takers are ready to sell on any troublesome news -- and ask questions later.
Main indexes closed flat on Friday.
But for the week, the Dow Jones industrial average rose 1 per cent, while the Standard & Poor's 500 Index gained 0.6 per cent and the Nasdaq Composite Index advanced 0.9 per cent.
The S&P 500 is up 72.4 per cent from its March 2009 closing low.
The 10-year U.S. Treasury note's yield brushed 4 per cent last week, foreshadowing a possible roadblock for stock bulls.
Three government debt auctions last week had "mediocre, at best" results and rising yields "at some point, become an obstacle for equities," said Quincy Krosby, a market strategist at Prudential Financial in Newark, New Jersey.
Yielding 4 per cent and with the relative safety of U.S. government debt, Treasuries could entice investor money that would otherwise keep pumping into stocks.
Rising yields also lead to higher borrowing costs.
"It becomes worrisome with a fragile economy that's trying to gain traction and momentum," Mr. Krosby said.
Investors will have plenty of data points to gauge that momentum in the coming holiday-shortened week.
The consumer's strength will be measured by February income and spending data on Monday and March consumer confidence, on Tuesday.
Personal income is forecast to rise 0.1 per cent, mirroring the previous month's gain, while the Conference Board's consumer confidence index is seen rising to 50 in March from 46 in February, according to economists polled by Reuters.
The S&P/Case-Shiller home prices index for January, due on Tuesday, is expected to show house prices fell 0.7 per cent year-over-year, much slower than 3.1 percent recorded in December.
Construction spending in February, due on Thursday, is seen dropping 1 per cent.
On the labor market front, Friday's widely followed non-farm payrolls report is expected to show 190,000 jobs created in March. But the U.S. unemployment rate is seen unchanged at 9.7 per cent.
Payrolls data follows the ADP National Employment Report on Wednesday, with economists expecting the private sector created 40,000 jobs in March, and Thursday's data on initial jobless claims, predicted to dip to 440,000 last week from 442,000 previously.
Rounding out the week's economic data, the Chicago PMI on Wednesday is seen at 61 in March, down from February's 62.6.
The Institute for Supply Management's manufacturing index, due on Thursday, is expected to show U.S. factory activity continued to expand, with a March reading of 56.8, up from 56.5 in February. March domestic car and truck sales are also expected on Thursday.
Volume could also tick higher this week, which would be a welcome shift from the anemic volume dogging stocks the past few weeks.
With the quarter's end on Wednesday, some managers will reposition portfolios by selling laggard stocks and switching to stronger names.
If stocks benefit further from this window dressing, backed by expectations of strong data points, the three major U.S. stock indexes could be on track for a fifth straight week of gains. That would be a streak not seen since the six weeks that followed the bottoming of the market just over a year ago.