A U.S. data clog will begin to clear this week and payrolls figures will land just as more than one-quarter of S&P 500 companies report earnings. But equities, at record highs, have already surpassed expectations for the year and could begin to drift sideways.

The S&P 500 closed Friday at 1,744.50, an all-time high, making it safe to say the bulls are in control on Wall Street. Neither the four-month rise in benchmark Treasuries yields that topped in September nor the government shutdown and near-technical default on U.S. debt last week could derail the rally.

"Investors may be feeling a bit invincible, having survived the rise in rates and the shenanigans in D.C.," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

He said, however, the consequences of the rise in interest rates and the evidence of an economic slowdown could take a toll, and investors could begin to cash in on a good year as fourth-quarter outlooks dim.

Expectations for earnings growth in the year's last quarter are now at a lofty 10.3 percent, although they are expected to fall.

"I'm not so concerned about the third-quarter earnings numbers as those are likely to come in without much fanfare. I'm more concerned about what analysts do with fourth-quarter earnings numbers," Jacobsen said. "I think we could have a topping market here."

Positive third-quarter earnings from Google and Morgan Stanley helped the S&P close at a record on Friday. For the week, the Dow rose 1.1 percent, the S&P was up 2.4 percent and the Nasdaq advanced 3.2 percent.

 

HERE COMES THE DATA

September payrolls numbers, expected two weeks ago, will be released on Tuesday to start a flow of economic data delayed because of the 16-day government shutdown that ended on Thursday.

The September data won't be corrupted because of the delay, but October data may be. The Federal Reserve has repeated that its decision regarding when and by how much to reduce its $85 billion a month stimulus is data dependent, and the trend may not be reliable next month.

"Professional investors are pretty well aware of the new schedule, but that may not be the case for retail," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.

"When we get the non-farm payrolls next Tuesday, the focus may shift to 'what is the Fed going to do with its stimulus program' since we've moved away from the whole Washington drama for now."

Adding to the data question mark, the economic headwinds stemming from the recent disarray in Washington have all but ensured the Fed's quantitative easing will not be reduced until next year.

 

EARNINGS GALORE

About 28 percent of S&P 500 components will report earnings this week. The list includes Dow components Caterpillar, McDonald's, Boeing, Microsoft, UPS , AT&T and DuPont, alongside crowd favorites Netflix and Amazon.com.

Overall earnings growth on the S&P 500 is expected to be 2.1 percent for the third quarter, down from an estimate of 4.5 percent at the beginning of October and 8.5 percent in July.

In terms of revenue, 53 percent of the nearly 100 companies that have reported, have beaten expectations and 46.9 percent have missed. In a typical quarter going back to 2002, 61 percent of companies beat revenue estimates and 39 percent missed.

"It's going to pull us back to Earth a little bit. Earnings are important but what I am looking at is revenue," said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts.

"There are a couple of companies that are doing well, and God bless them, but is that the rule or the exception?"

At 14.6, the S&P's forward price-to-earnings ratio is near its highest in four years and slightly under the long-term mean of 14.9. The P/E multiple has risen throughout the year as earnings growth has remained stagnant, and forecasts are likely to fall in coming months. Without improved growth, that P/E will start to look expensive.