There will be little economic data next week and only a few companies are scheduled to report financial results. The lack of a strong stimulus will give investors a chance to assess the big jumps of the last three sessions -- gains that some strategists said had pushed the market too high too quickly.
"We've had a strong recovery ... but I think we've run a bit too fast," said Michael Metz, chief investment strategist at Oppenheimer & Co. "We're overdue from some flatness or some slight declines."
Housing figures will dominate next week's economic calendar, and economists surveyed by MarketWatch expect all of the reports to reflect softer activity in the sector. The Philadelphia Federal Reserve will release its manufacturing index and the Conference Board will put out leading indicators later in the week.
Nine stocks in the S&P 500 Index are set to post results, including Morgan Stanley , FedEx Corp. , Best Buy Co. and Circuit City Stores Inc.
Investors will be watching the consumer-electronic retailers' financial results for any word on buying trends and their impact on the companies' financial outlook. Analysts surveyed by Thomson Financial expect weaker sales will hurt the companies' first-quarter results.
Joe Liro, equity strategist at Stone & McCarthy Research Associates, said that the quiet week might lead investors to rethink the sharp stock advances, including a weekly climb of 2% on the Nasdaq Composite Index and a 1.6% spike in the Dow Jones Industrial Average .
"What I fear is that idle hands will be the devil's workshop," he added, "and investors will start worrying about interest rates again and reverse some of the gains."
Recent increases in official interest rates by the European Central Bank, the Swiss central bank and the Reserve Bank of New Zealand, along with a rise in the price of oil have sparked concern that interest rates are headed higher.
Metz said that the expiration of options on Friday may have exaggerated strength in the market. Stocks zoomed up Friday after May core consumer prices, which exclude food and energy prices, came in a tamer than expected rate of 0.1%. The headline CPI, however, ran at a hot rate of 0.7%.
Some economists after the release of the CPI report expressed concern that rising gasoline prices at some point will seep into core consumer inflation and put pressure on the Federal Reserve to raise interest rates.
"There remain significant upside risks to energy prices," wrote Richard Moody, chief economist for Mission Residential, in a note to clients. "Moreover, food prices will remain under upward pressure, thanks in no small part to the folly otherwise known as the ethanol craze."
Financial markets this week began to price in slightly higher odds of a rate hike by the Fed, a shift from earlier expectations of two rates cuts by the end of the year.
But Al Goldman, chief market strategist at A.G. Edwards, said that the tamer CPI calms worries about the Fed's next move, which he said bodes well for stocks in the coming week.
"I'm surprised at how quickly [the market] has snapped back ... but the buyers are not relenting."
Figures from the housing sector will start coming in on Monday. The National Association of Home Builders index for June is expected to slip to 28 in June, from 30 in May. Readings under 50 indicate most builders consider business conditions as unfavorable.
"I'd be pleasantly shocked if there were any improvement in the building industry," said Goldman. "That's an '08 phenomenon," he added, pointing out that he doesn't expect poor housing figures to shake up the market.
May housing starts, duTuesday, are forecast to fall to 1.47 million from 1.53 million. Also Tuesday, building permits are expected to show a decline to 1.45 million from 1.46 million. Both reports will come from the Commerce Department.
The markets will monitor testimony by Treasury Secretary Henry Paulson to the Housing Financial Services panel on Wednesday, at which he will address China currency issues.
New York Fed President Timothy Geithner -- a voting member of the central bank's rate-policy committee -- will speak about trends in Asian financial sectors on Wednesday, while Dallas Fed President Richard Fisher is scheduled to talk about the Fed and economic conditions.
The release of leading economic indicators for May will come Thursday. Economists expect an increase of 0.2%, reversing a decline of 0.5%. Also that day, the Philly Fed's business index is expected to show a pick up in regional factory activity, to 6.1 in June from a 4.2.
An ease in Treasury yields following the tamer than anticipated core CPI report aided the stock market's rise on Friday. The Dow surged 85 points; the tech-heavy Nasdaq rose 27 points; and the S&P 500 Index rose 9.9 points. The broad index closed the week up by 1.6%.
The yield on the benchmark 10-year note closed at 5.17% Friday, lower than the multiyear high of 5.33% that it reached earlier this week.
A steady increase in bond yields over the past two weeks has provided competition for stocks as investors look for higher investment returns. The increases also spurred worries that borrowing costs will become more expensive for consumers and businesses.
Crude-oil futures finished at $68 a barrel on Friday, their highest level since mid-April, as violence in the Middle East and Nigeria escalated. Crude prices jumped 5% for the week.
The dollar fell against the euro but rose against the yen after the Bank of Japan left its rates unchanged. For the week, the dollar advanced 1.4% against the yen, but was little changed against the euro.
Gold futures closed up $2.80 at $658.70 an ounce, leaving the benchmark contract up 1.3% higher for the week.
By Carla Mozee