Wall St week ahead: Bulls won't be tamed by weak earnings

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Despite a mediocre earnings season and signs of an overbought market, Wall Street bulls are likely to remain in control next week.

So far in this earnings season, 352 companies in the S&P 500 have reported results, of which only 63% have beaten Wall Street estimates. This compares to a beat rate of about 70% on average for the past four quarters and would be the lowest since the fourth quarter of 2008.

Usually, strong earnings are associated with stock market rallies and improved investor sentiment. But despite this season's relatively weak results, the S&P is up nearly 7% for the year, and the index has posted gains for every single week in 2012 except for a 0.2% loss this week.

"The demand for risky assets is strong. There is steady buying in the market, and the money is constantly being put to work," said Brian Lazorishak, portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

"The market is sort of overlooking the weak 2011 earnings and looking forward to an improved 2012 earnings season... It's like a green light to investors to get into risky assets."

There are a number of catalysts that have helped the market this year, including a slew of improved economic data and the Federal Reserve's vow to keep interest rates low.

Earlier this week, Fed Chairman Ben Bernanke reiterated his plans to hold interest rates at record lows until late 2014. Many economists were looking to see if Bernanke might waver on that stance after last week's news that hiring surged in January and the unemployment rate fell to a three-year low of 8.3%.

Also last week, the Institute for Supply Management said its services index rose in January to its highest since February 2011.

"Earnings upgrades by sell-side analysts tend to move in line with economic momentum, with global earnings momentum typically turning positive when the ISM new orders moves above 52," said Credit Suisse Group AG's analyst Andrew Garthwaite.

"Yet, new orders are now at 57, and earnings momentum continues to be clearly negative," he said, adding that "this was a problem but not necessarily bearish for markets."

The S&P 500 fell 0.7% on Friday, its biggest percentage decline so far in 2012 after an about-face on Greece's long-awaited debt deal ended a five-week streak of gains for equities.

Investors have anxiously awaited a bailout package for Greece so the country might avoid a messy debt default, but complications have tied up talks for weeks.

An agreement finally came this week but it was dealt a blow as workers in Greece went on strike to oppose fiscal reform measures requested by the European Union and International Monetary Fund. Greek Finance Minister Evangelos Venizelos said the nation needs to reach a decision within days on accepting the terms of a bailout.

Next week 51 S&P 500 companies are expected to report earnings. The earnings growth rate for the S&P 500 for the fourth quarter of 2011 is now at 8.9%, according to Thomson Reuters I/B/E/S. However, excluding Apple