With signs of a slower economy mounting, the near-term outlook for U.S. stocks isn't rosy, but investors may find comfort next week from the world's major central banks.
The Federal Reserve will meet on Tuesday and Wednesday, with the report of weaker-than-expected, first-quarter growth could reinforce expectations the Fed will keep purchasing bonds at a pace of $85 billion a month.
Low interest rates and ample liquidity provided by the Fed and other central banks have buoyed global equity markets because low borrowing costs for businesses and consumers lead to richer corporate profits. Major U.S. stock indexes hit record highs earlier this month.
"As long as it looks like central banks are on your side and on investors' side as far as providing more liquidity, that's going to help improve sentiment," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
"I don't think (Fed officials) have got enough data since the last meeting to really justify changing policy. I really don't think they're going to look at slowing the pace of purchases until probably September."
A strong commitment from the Fed to continue its stimulative policy, coupled with corporate earnings that have mostly exceeded lowered forecasts, could help Wall Street extend a rally despite signs that the U.S. economic recovery is losing momentum.
Even though the market ended flat on Friday, its performance for the week was positive. The Standard & Poor's 500 rose 1.7 percent, the Dow Jones Industrial Average was up 1.1 percent and Nasdaq Composite Index rose 2.3 percent
The economy expanded at a 2.5 percent annual rate in the first quarter, the Commerce Department said on Friday, short of expectations of 3.0 percent and setting a cautious tone.
A heavy slate of key economic indicators will be released next week, including personal income and spending, the Institute for Supply Management's manufacturing and services activity indexes, pending home sales, the Chicago purchasing managers' index and consumer confidence from the Conference Board.
The highlight of the week will come on Friday when the Labor Department releases its employment report for April.
Economists polled by Reuters are looking for job growth of 150,000, up from 88,000 in March. The unemployment rate is likely to remain unchanged at 7.6 percent.
"Today's (GDP) data suggests maybe the momentum is much weaker that what was priced in," said John Praveen, chief investment strategist at Prudential International Investments Advisers in Newark, New Jersey.
"We have had a very strong rally, so people are looking for any trigger for profit-taking," he said. Praveen said the market could see a 5 percent pullback in the months ahead should upcoming data prove weaker than expected.
Stocks have had a wild run over the past week after hackers attacked the website of stock broker Charles Schwab Corp and a false report on the Associated Press's Twitter account about explosions at the White House sent the market into a brief tailspin.
On Thursday, a software glitch shut down the Chicago Board Options Exchange for half the day, preventing trading in options on two of the stock market's most closely watched indexes and delivering the latest blow to confidence in the way U.S. financial markets operate.
The European Central Bank meets on Thursday and investors will watch to see if it delivers an interest-rate cut as the euro zone economy deteriorates further. Further monetary easing would encourage investors to buy riskier assets and boost stocks.
"The market has been rallying on the fact the ECB might actually start to do something; if the U.S. market reacts in the same way, that might get the market rallying," said John Canally, investment strategist and economist for LPL Financial in Boston.
With earnings reporting now half over, investors will look to see if companies can continue to exceed profit estimates despite lackluster revenue.
According to Thomson Reuters data, of the 271 companies in the S&P 500 that have reported earnings for the first quarter, 69 percent have beaten analysts' expectations, above the 63 percent average since 1994.
However, only 43.9 percent have topped analysts' revenue forecasts, well below the 62 percent average since 2002 and the 52 percent rate for the last four quarters.
Analysts now see earnings growth of 3.8 percent this quarter, up from expectations of 1.5 percent on April 1.
Next week Dow components reporting results will be Pfizer and Merck. Other companies scheduled to report include Loews Corp, Aetna Inc, Chesapeake Energy , Visa Inc, Viacom Inc and Kraft Foods Group Inc.
David Joy, chief market strategist at Ameriprise Financial, based in Boston where he helps oversee about $700 billion in assets, said the lackluster figures suggest the second quarter may not be as robust as hoped.
"Right now, markets are going through an adjustment process, trying to figure out just how robust the economy is here and overseas as well," Joy said. "You have investors sort of biding their time. They are invested, but not with complete conviction."