King dollar question mark for earnings and stocks

Traders work on the floor of the New York Stock Exchange.
Stocks could still stumble as earnings season looms   

Even after Friday's jobs data fueled the market's rally, stocks could be in for more bumps, as the first trickle of earnings reports begin.

Alcoa, while no longer a Dow component, heralds the traditional launch of earnings reporting season Wednesday. Pepsico reports Thursday and then the avalanche of third-quarter reports comes the following week with big banks, pharmaceuticals, tech and others.

Important in the week ahead will also be the flurry of Fed speakers, including Vice Chair Stanley Fischer at Brookings Institute Thursday. The Fed will remain a focus when minutes from its last meeting are released Wednesday. Data includes Tuesday's report on JOLTs, job openings and turnover, and there are auctions of 3-year and 10-year notes, Tuesday and Wednesday, and 30-year bonds on Thursday.

Stocks ended the week lower, despite Friday's gains. The Dow was down 0.6 percent for the week at, 17,009.69, while the S&P 500 dropped to 1,967.90, down 0.8 percent on the week.

Meanwhile, the Nasdaq declined to 4,475.62 and the small cap Russell 2000 dropped to 1,104.74, down 0.8 percent and 1.3 percent for the week, respectively.

Big market swings continue to be the norm, as traders focused this past week on soft data from Europe and China and macro events like the protests in Hong Kong and the discovery of an Ebola victim in the U.S.

"This is the fourth selloff so far this year. We've seen this before. We'll see it again. Does it develop into anything more significant? It depends on all the concerns out there," said Bob Doll, Nuveen Asset Management chief equity strategist and senior portfolio manager.

Read MoreDow, S&P 500 post biggest gains in six months

Doll said the September jobs report, with a higher-than-expected 248,000 nonfarm payrolls, was a clear positive, but not enough to kick stocks out of the doldrums despite Friday's more than 200-point Dow rally. "We need more evidence that the economy is okay for the stock market to move to new highs," he said.

Doll said investors have a litany of concerns, including—the Fed, Europe, economic growth, earnings, technical divergences, Hong Kong protests, Ebola, this weekend's Brazil elections turmoil, and the aftermath of management change at Pimco bond funds, among others. The Fed has increasingly put markets on edge, as the tapering of its bond buying, or quantitative easing, ends this fall, setting it on a course to raise rates next year.

Read MoreMaybe it's time to throw out the unemployment rate

"We've had a double-barreled market. We had earnings go up. We had P/E [price-earnings ratio] go up. The Fed is no longer the catalyst for P/E going up. It's just earnings. Taking the Fed positive away, leaves us with one barrel. That means smaller gains and more volatility," he said. "I'm not concerned with the Fed getting ahead of the curve. They're going to lag the curve. The Fed normalizing rates is not a negative for stocks, not a positive for bonds."

Earnings could be a positive catalyst with earnings growth expected at 6.4 percent for the S&P 500, according to Thomson Reuters. But analysts caution that the rising dollar may have caused some companies to stumble, and forward comments about earnings impact from the dollar and the global economy will be important.

Read MoreFed will likely keep policy after jobs data: Pros

"In a week and a half, we won't be talking about these macro issues. We'll be talking about earnings and that's what drives stock prices," said John Canally, market strategist and economist at LPL Financial. "I think that should be good news. We think earnings are going to be good. Since the end of July, we've been whipsawed back and forth by big macro stuff, and not the micro stuff that ultimately drives stock prices."

Traders on the floor of the New York Stock Exchange.
Getty Images
Traders on the floor of the New York Stock Exchange.

In the past week, the Russell 2000 registered a more than 10 percent decline from its high, putting it in correction territory, much deeper than other indices. Analysts have said that divergence was a concern, and it also spread this past week to the mid-cap sector.

"The market got overbought. We started seeing divergences" that were unresolved, said Doll. "We got a head of steam in the Alibaba IPO. The market faded that day. That was the high…My guess is we have more short term turmoil to go, more probing to the downside. New highs would surprise me more than anything."

The market has indeed come down since peaking on Sept. 19, the day Alibaba started traded at the biggest IPO ever. The S&P 500, as of Friday afternoon, was down more than 2.5 percent since then, though Alibaba is about $20 above its $68 offering price.

Read MoreHere's why you should worry about mid-cap stocks

Of all the worries on his list, Doll said the big one is Europe and whether the European Central Bank succeeds in lifting the economy and fending off deflation.

Rick Rieder, co-head of Americas fixed-income at BlackRock, agrees that volatility in the U.S. markets is imported from overseas and he points to concerns about growth in China, Japan and Europe.

"Frankly, I think U.S. growth may ebb and flow, but it will be around a decent set of numbers," he said, noting the U.S. is moving slowly toward rate normalization as those other regions require central bank and fiscal intervention.

Rieder said for this reason, the dollar should continue to gain. The dollar index was up more than 1 percent for the week, and it's up more than 8 percent year-to-date.

Read MoreGold mining shares dive on breakout jobs report

Oil fell more than 4 percent in the past week, and the stronger dollar was one factor as was supply. WTI crude fell below $90, and was at a 17-month low. Brent, the international benchmark, was off even more than WTI, losing 5 percent and it was trading at a 27-month low of $92 a barrel, a near 20 percent decline from its high.

Rieder said the U.S. is benefiting from cheaper oil prices, not only because of the impact on consumers but the fact the U.S. energy boom has helped drive cheaper energy prices across the entire economy. In the most recent week, the government reports that U.S. oil production rose to 8.8 million barrels a day, a million barrels higher than last year.

"I don't think people really appreciate the multiplier effect energy has through the system," he said, adding it passes through to the chemical industry and transportation.

Read MoreWhat natural gas supplies mean for your winter heating bill

"You're creating a tail wind to economic growth without inflation. What drove volatility in inflation in the last decade was incredible volatility in oil," said Rieder. He said it's now stable even though events in the Middle East would have driven prices higher in the past.

Doll said cheaper oil could translate to better holiday sales. "Among the reasons the economy is okay, and earnings are okay is the decline in oil prices. Consumers are spending as a percentage of income , less money on food and energy than they have in a couple of years," said Doll.

November election positive

"I just think the market continues to consolidate. The bull market I'm convinced, is not over even though we could have a few months of sloppiness. Seasonally, we'll get into a strong period close to the election," he said. Doll said the market has not priced in the potential for a Republican victory in the Senate, and if there were one it would be viewed as a positive. But even still, the market traditionally performs well in midterm election years, both at the end of the year and into the first quarter of the next year.

Read MoreArt Cashin: 'Sigh of relief' rally on Wall Street

"It's the 16th mid-cycle election since 1950. Six months later the market has always been up and the average gain is 16 percent, and 100 percent of the time it's been up," he said. For now, the market "needs to see improvement in breadth. The internals of the market need to get healthier. There could be a period of sideways action…whether it's November, December, January or February, I'd be shocked if we didn't see new highs. Something would have to go haywire in the economy, and I just don't see that."

Traders are also watching the general elections in Brazil Sunday. The latest poll Friday showed President Dilma Rousseff edging out the two main challengers. A runoff of the top two candidates would follow if no candidate gets half the vote. Markets have favored candidates other than Rousseff, seen as less likely to implement reforms to improve economic growth.

What to watch

Monday

Earnings: The Container Store

8:30 p.m.: Kansas City Fed President Esther George on the economy

Tuesday

Earnings: International Speedway, Yum Brands

10:00 a.m.: JOLTs

1:00 p.m.: 3-year note auction

2:30 p.m.: Minneapolis Fed President Narayana Kocherlakota on policy

3:00 p.m.: New York Fed President William Dudley on regional economy

3:00 p.m.: Consumer credit

Wednesday

Earnings: Alcoa, Costco, Monsanto, RPM International, Ruby Tuesday

7:00 a.m.: Mortgage applications

8:30 a.m.: Chicago Fed President Charles Evans

1:00 p.m.: 10-year note auction

2:00 p.m.: FOMC minutes

Thursday

IMF fall meeting

Earnings: PepsiCo

Chain store sales

8:30 a.m.: Initial claims

9:00 a.m.: Philadelphia Fed President Charles Plosser on monetary policy

10:00 a.m.: Wholesale trade

10:30 a.m.: St. Louis Fed President James Bullard, opening remarks at St. Louis Fed conference

10:30 a.m.: Oil inventories

11:00 a.m.: ECB President Mario Draghi at Brookings, DC

11:00 a.m.: Fed Vice Chair Stanley Fischer at Brookings on ECB

1:00 p.m.: 30-year bond auction

1:10 p.m.: Fed Gov. Daniel Tarullo on regulatory reform

1:15 p.m.: Richmond Fed President Jeffrey Lacker on growth and the labor markets

1:30 p.m.: Fed's Fischer at IMF on global economy

3:40 p.m.: San Francisco Fed President John Williams on economic outlook

Friday

Earnings: Fastenal, Infosys, Progressive

IMF fall meeting

8:30 a.m.: Import prices

9:00 a.m.: Philadelphia Fed's Plosser on monetary policy

1:00 p.m.: Kansas City Fed President Esther George on economy

2:00 p.m.: Richmond Fed's President Jeffery Lacker on the economy

2:00 p.m.: Treasury budget