Stocks bulls may hit the pause button

U.S. stocks are set to run into some turbulence this week as investors pause to gauge if profit expectations and economic prospects will justify the market's further advance from the 12-year lows touched earlier this month.
Since hitting those significant lows, the market has rallied strongly, lifting the benchmark S&P 500 .SPX more than 20 percent, amid burgeoning hopes that fallout from the economic slump may be subsiding.
"Consolidation will not be a bad thing," Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland, Ohio, said, referring to the likelihood for the market to pause from the recent run-up this week. "I am continuing to look for signs that things aren't getting worse," he added.
Barring any shocks early in the week, the benchmark S&P 500 could close March with its biggest monthly gain in about two decades. With an even more bullish footing at month's end, the market could be propelled to its best monthly advance in 22 years.
Besides a deluge of economic data, comments from companies in the run-up to the start of the first-quarter earnings reporting season are also expected to command attention. Additionally, any developments from Thursday's G20 Summit in London could also set the tone.
"The market will be looking for continued 'green shoots' that things continue to improve on a marginal basis, either slower rates of decline or actual improvement," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.
"To the extent that that is reinforced by the data, it should benefit the stock market. But on the other hand, if we get some negative surprises, the whole question of when the economy is turning or if it is turning will be brought back into the discussion," he said.
Reports that have helped fuel hopes of some stabilization in the economy in recent days include unexpectedly strong February new- and existing-home sales as well as a slightly less dire-than-expected reading on fourth-quarter gross domestic product.
The release of a long-awaited U.S. government plan to rid bank balance sheets of money-losing "toxic" assets has also been a big spur.
The highlight in the upcoming week's economic calendar is perhaps Friday's March nonfarm payrolls report from the Labor Department, along with a March reading on the health of the vast services sector from the Institute for Supply Management (ISM).
February pending home sales, the March ADP employment data and the ISM's gauge of U.S. manufacturing are due on Wednesday. The day before that investors will sift through the March reading on U.S. Midwest manufacturing activity, the January S&P/Case-Shiller home price index and March consumer confidence.
Analysts said there was an emerging consensus that economic data could not get much worse, opening the door to possibly more gains, but the extent of the recent run-up also made it likely that stocks may consolidate gains and see some profit-taking.
"We are now in a position where it is hard for data to come worse than expected," said Chip Hanlon, president Delta Global Advisors Inc, in Huntington Beach, California.
"And from the corporate level we're even seeing positive surprises. Not necessarily good numbers, but not as bad as expected. I don't think (this) week economic data is a big cause for concern but it would be better if more profit taking took place and we backed up a little bit," he added.
The quarterly earnings reporting season begins in earnest on April 7 when aluminum producer Alcoa Inc (AA.N) a Dow component posts its results after the market's close.
As such, investors may hang on every word of the corporate outlooks that could come as early as this week.
According to the latest Thomson Reuters data, first-quarter earnings for the S&P 500 should drop 35.6 percent from a year earlier, marking the longest streak of negative growth since Thomson Reuters began tracking the data in 1998.