By Kate Gibson

The U.S. stock market is keeping close tabs this week on financial results from Macy's Inc. and other big retailers, the last large group to report quarterly earnings, with a recent rally in the sector raising the expectations bar.

"The recent price action of many large retailers suggests expectations for good news from these companies is high, thus any slight disappointment could translate into a quick pullback in these names which spills more broadly across the market," Fred Dickson, chief market strategist at Davidson Co., wrote Wednesday in a note to clients.

"Generally speaking, the discretionary sector wouldn't have much impact from a mathematical standpoint; it's much smaller than say tech or energy," said Dan Greenhaus, recently named chief economic strategist at Miller Tabak.

But given the current focus on consumer-spending patterns, earnings reports from retailers "could have outsized effects on the market more broadly," the analyst added.

On Wednesday, consumer-discretionary shares, which account for 9.3% of the S&P 500 Index's (SPX) market capitalization, were among those advancing as the major indexes rallied more than 1%.

Retail stocks were bolstered as department-store operator Macy's raised its profit outlook for the year. .

"Attention should be paid to the likes of Macy's and Ethan Allen Interiors Inc. (ETH) among others to see if any progress is expected with respect to consumer behavior," said Greenhaus.

"The retailers have had a near-40% rally off the lows, and these reports could be the fuel to drive stocks higher or pull them back," said Greenhaus.

The Dow Jones Industrial Average (DJI) added 128.62 points, or 1.4%, to 9,370.07. The S&P 500 gained 13.71 points, or 1.4%, to 1,008.06, while the Nasdaq Composite (RIXF) rose 34.24 points, or 1.7%, to 2,003.97.

Retail nation

"Over the next couple of days we will get a better picture of the health of the nation's retailers as several big ones report second-quarter earnings, including Wal-Mart Stores Inc. , Kohl's Corp. and Nordstrom Inc. ," said Jacob Meyer, an equity analyst at D.A. Davidson & Co.

"We expect to see these retailers meet or beat analysts' earnings estimates as a result of cost cutting," Meyer added.

Wal-Mart, part of the Dow industrials, early on Thursday will report financial results for the second quarter ended July 31.

Kohl's and Nordstrom are also slated to report Thursday, while results from J.C. Penney and Abercrombie & Fitch Co. (ANF) are on tap Friday.

Related numbers are also due Thursday from the government, which is expected to report retail sales in July gained 0.7%. Excluding auto sales, economists are looking for monthly sales to stand little changed to slightly higher.

But the report could prove better than anticipated, given the recent 10.7% rise in the federal minimum wage to $6.55 an hour, said Margaret Kempner, a foreign-exchange analyst at Brown Brothers Harriman & Co.