Earnings remain key as Dow nears turnaround

By Jennifer Coogan

NEW YORK (Reuters) - Investors will have seen enough corporate results by the end of next week to determine if the recent string of encouraging earnings was an anomaly or a real sign stocks can weather the credit crisis and economic slowdown.

If the market in the next five sessions manages to match this week's gains, it could put the Dow in positive territory for the first time this year.

All three major indexes ended the week up more than 4 percent, with the Dow posting its best week since February.

The Dow and the S&P 500 each ended the week up 4.3 percent, while the Nasdaq ended 4.9 percent higher.

"I think for the market to extend these gains it would have to have more comfort that the earnings are moving up and consumer cycle has bottomed out," said Subodh Kumar, chief investment strategist, Subodh Kumar & Associates in Toronto. "This week the S&P 500 has gone below my fair value calculation of 1,350 to slightly above."

This week's swift advance was powered by financial sector quarterly results that suggested banks have done a thorough spring cleaning, leading Wall Street to believe they purged their balance sheets of any trace of subprime exposure.

"We're not out of the woods," John Forelli, senior vice president, Independence Investment LLC, said, noting that upcoming results will be key.

"The earnings can continue to come out fairly strong but the news won't be that ebullient. There will probably be more write-offs, and you're going to have a fair amount of companies doing layoffs," he said. "The financials are the ones that are the key as far as getting confidence back in the market."