Retail sales, Wal-Mart may extend stocks rally next week

By Ellis Mnyandu

NEW YORK (Reuters) - U.S. stocks should rally next week, and push the Dow into positive territory for the year, with bank stress tests out of the way and investors hopeful retail sales will reinforce views the economy is on the mend.

The week may provide clarity on whether the recent signs of stabilization are translating into profits, with Wal-Mart Stores Inc (WMT.N) among several big retailers due to post quarterly results.

Although the Standard & Poor's 500 Index is up 37 percent from the bear market closing low of early March and the risk of a pullback is mounting, analysts said renewed confidence about banks' health should be enough to keep the bulls in charge a little longer.

A speech by Federal Reserve Chairman Ben Bernanke about the financial system's condition on Monday will keep the spotlight on what's ahead for banks.

"Now that the stress tests are out, we have some certainty in terms of where banks stand in the spectrum of stronger to weaker," said Richard Sparks, senior equities analyst and options trader at Schaeffer's Investment Research in Cincinnati.

"It seems the path of least resistance is upward. I certainly see the S&P 500 reaching 1,000 as a distinct possibility in the next several weeks."

And as the first-quarter earnings season is winding down, the spotlight will fall on anything that could spark more hopes the recession that started in December 2007 is waning.

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