Fourth quarter earnings for the S&P 500 are expected to rise about 7 percent, according to Thomson Reuters. Financials are expected to report the biggest profit increases – a 21 percent jump. Besides earnings reports from JP Morgan and Wells Fargo on Tuesday, Bank of America reports Wednesday, and Goldman Sachs, Citigroup and BlackRock report Thursday. There are also reports from Intel and General Electric later in the week, but the big gusher of earnings gets underway next week.
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Wells Fargo Securities strategist Gina Martin Adams pointed out in a note that the ratio of negative-to-positive earnings guidance this quarter is double its eight-year average at more than six-to-one.
"We're all thinking that the market's 10 to 15 percent overvalued…It could drop 10 percent and get back to what I say is fair value," said Ablin. "My take on it is 'yes it's possible the market can continue to decline on valuation but I don't think the market is so overvalued that it's worth getting out of the way to get back in. I would view any correction as a speed bump rather than a pit." Ablin expects a 7.5 percent return for the market this year.
Ahead of Monday's market open, Goldman Sachs analysts said stocks could be in for a 10 percent correction, echoing the comments of a number of other market pundits.
"I think you need to put it in perspective. I don't want to minimalize it, but at the end of the day, it's down a point and a quarter…We used to call that normal volatility," said Brad McMillan, chief investment officer for Commonwealth Financial.
McMillan said investors may be giving the market another look after last year's near 30 percent gain, and they will be weighing both earnings and the economy. "Investors are very likely to stop and re-evaluate at the start of the year…do we like what we see? Maybe people aren't as excited as they seemed to be," he said.
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Stocks were soggy out of the gate Monday, and bond yields were lower as traders fretted over last Friday's weak jobs report. In the bond market, talk continued to touch on whether the Fed would now proceed as expected with its tapering of bond purchases.
The 10-year yield was at 2.82 percent in late afternoon. The VIX, which fell 11 percent last week, jumped 9.4 percent to 13.28, after starting off the day negative.
"There was an inflection point during the morning as the S&P started to lose ground and as the selling picked up momentum in the afternoon, there was a significant shift in expectations," said Dan Deming, who trades the VIX for Stutland Equities at the CBOE. The VIX is based on trading in S&P 500 puts and calls on the CBOE, and is viewed as a measure of market expectations for near term volatility.
"I think it has a lot of people…second guessing short-term exposure," Deming said. Earlier, before the VIX surged, he said there was a disconnect in the market, with investors expecting just a small pull back in the S&P. But he said there was more buying in near-term calls on the VIX as investors bet on more volatility as the day went on.
Ablin also said there was a change in the market Monday. "Most days (recently) the market was up in the morning and down in the afternoon. You had retail coming in to buy, placing market orders before the open and institutions selling at the end of the day. Today it seems like retail was not part of it," he said.
Tuesday's retail sales is one of the key pieces of data traders are watching after Friday's December jobs report showed just 74,000 jobs created, well below the 200,000 expected. Economists expect a 0.2 percent gain in retail sales. There are also import prices; both are reported at 8:30 a.m. ET. The NFIB small business survey is released at 7:30 a.m., and business inventories are at 10 a.m.
McMillan said he is watching the retail number carefully, to see what it says about the consumer. Among the retail chains, he expects to see a bifurcation with high end merchants faring better when they report earnings later in the quarter.
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"That's going to be an interesting number to take a look at," said McMillan. "One thing that concerns me is we've seen the extended unemployment benefits expire and a lot of that is spent at that tier (of low-end retailers) that is most at risk." He said it is too soon for that trend to show up.
The bond market will also be paying close attention to every bit of data, but particularly retail sales, housing starts and industrial production this week.
"I think most people on the street think they're (the Fed) still going to taper," said Ian Lyngen, senior Treasury strategist at CRT Capital. "They've made the point repeatedly that they're not going to base monetary policy off of one data point. We always forget that."
But Lyngen said yields could continue to move lower as investors watch the data. "I think the momentum in the market is now bullish," he said, noting he is watching the 21-week moving average at 2.774 on the 10-year. "We have a channel projection at 2.715."
Traders are also watching Fed speakers for clues on the bond buying program. The Fed has said it would cut its $85-billion-a-month asset-purchase program by $10 billion this month, and now there is speculation about whether it will still make a similar move at the January meeting after Friday's jobs report.
The market is hypersensitive to any comments, and Atlanta Fed President Dennis Lockhart caught traders' attention Monday when he said he supports similar tapering steps to reduce bond market purchases. But he also made cautious comments about the labor market.
Philadelphia Fed President Charles Plosser speaks at 12:45 p.m. on the economy, and Dallas Fed President Richard Fisher speaks at 1:20 p.m.
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.