"I've got to believe with the way the market is that they slip some statement in there. (The Fed) will send some sort of signal that their plan could change depending on how things play out. I suspect that would help things," said Bill Stone, chief investment strategist at PNC Wealth Management. "The Fed has forecast four interest rate hikes for this year, while the market has priced in just one. That's a big gap and I think some of the Fed was almost assuming the Fed is going to make a really bad error."
Gains in oil also took the pressure off of stocks, which have been moving in tandem with crude. West Texas Intermediate futures gained more than 13 percent in the final two days of the week, after collapsing through $30 per barrel.
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Analysts are watching oil industry earnings, like Halliburton and Chevron, for comments on production and capital spending to gauge the decline in current and future output. WTI crude futures settled Friday at $32.19 per barrel, a 9 percent gain.
"I view it as good news that next week we're starting into the heart of earnings season. I feel like rather than worrying ... we'll be able to see whether a company made it or not. At least you'll know something. Our view is ... ex energy, that earnings will look pretty good this quarter," said Stone. Of the S&P companies reporting so far, more than 70 percent have beaten on earnings but 53 percent have missed on revenues. According to Thomson Reuters, earnings are expected to decline by 4.3 percent and revenues are projected to fall by 3.6 percent.
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Stone said it's not clear whether the selling will subside for now because of the tight correlation between stocks and oil prices, which he says should break at some point.
"It's always hard because we all say it's a very sentiment-driven market. I guess I got to the point where I thought relative value might be enough," he said. "When you push it down enough, just decent news is not enough to break that horrible momentum. It was driven by fear of the unknown. Was oil going to keep falling through the floor? Was the global economy falling apart?"
Besides earnings from about a quarter of the S&P 500 in the coming week, the markets will face a barrage of economic data, including consumer confidence and sentiment, and fourth-quarter GDP on Friday.
One of the biggest fears in markets is that the economy is headed for a recession, whether led by China or not. If there's no recession, the view is there's no bear market — measured as a 20 percent or more decline from the highs. The S&P 500 has been down as much as 13 percent from its May peak.
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"Fourth-quarter growth is going to be ugly. That's one of the reasons 2016 looks bad," said Bank of America Merrill Lynch senior economist Michael Hanson. BofAML expects fourth-quarter growth at 0.6 percent, and 2016 growth of 2.1 percent.
But slow growth does not mean the economy is headed for recession, to which BofAML gives 20 percent odds. "It just does not look to me that fundamentals have deteriorated that much or that rapidly that we have a recession around the corner," said Hanson.
He said the consumer confidence and sentiment data Tuesday and Friday will also be important since the consumer is the one part of the economy that has been holding up, while manufacturing has contracted.
As for the Fed, Hanson said it is limited in what it can do on Wednesday, and its statement may not be quite as dovish as the markets expect.
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"It's too soon because the Fed really wants to wait and see whether the markets stabilize some or whether there's a meaningful spillover into the data," said Hanson. "The statement is a tricky place to make the kind of dovish remarks the market is hoping for. I wouldn't be surprised if they note some of the other risks around the outlook but they could also note the strong jobs report in December."
Hanson said there will be a better look at the Fed's thoughts in the meeting minutes or in central bank speeches. He said Fed officials will not indicate anything about the actual pace of hiking, but they could mention that inflation is persistently weak — which could be viewed as dovish.
"They have the risks now as being balanced and they could slice it a little bit and say recent market moves and global issues suggest some elevation of downside risks, or something along those lines. Nothing is going to really be in your face but some acknowledgement of that is possible," said Hanson.
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He said the Fed could indicate that it is monitoring the financial situation. "I think they can afford to be patient. I don't expect them to put a really heavy wet blanket over the markets at this point. I think there will be some language that will acknowledge that they are aware things are looking a little less good," Hanson said.
Stocks had their first positive week of the new year, with the S&P 500 ending at 1,906, a 1.4 percent gain for the week. The Dow was up 0.7 percent for the week and closed at 16,093, while the Nasdaq rose 2.3 percent to 4,591.
Technical strategists spent a lot of time dissecting an intraday market reversal Wednesday that some say could have set a near-term bottom for stocks, though many strategists expect selling and choppiness to continue. The S&P broke through its 2014 lows of 1,820 and hit 1,812. On Friday it was flirting with the 1,900 marker, a key level for resistance, but closed above it.
Scott Redler, partner at T3Live.com, said it's important for the S&P to hold the 1,880 to 1,890 level. He does expect many traders to sell a rally, and upside resistance will come in at 1,950 to 1,970.
"Oil hit our $32 target, and if it can stay above $30 for a session or so it will help. Also if Asia gets some upside follow-through," he said in an email. Redler follows short-term technicals.
Mark Newton, chief technical analyst at Greywolf Execution Partners, describes himself as an "intermediate bear" but he says the market may be ready for a near-term bounce.
"You've made some good technical progress and the move in crude is encouraging, getting above $30. This is a short-term breakout from the whole downtrend," he said. "I think near term, the worst is done. If you have a long bias, and try to buy the dips I think it rallies into spring."
Newton said he does not think the market set its lows for the year yet. "I'm not sure if we can't do a full 20 percent and get down to 1,600 just based on the damage that's been done with things like the transports and small caps ... it's sort of a wait and see," he said. "At this point I really want to focus more on the balance than thinking we have a lot further on the downside."
Newton did say the near 7-year-old bull market is getting tired, but it's not yet over. "This looks like we're getting close to the end of the first leg down and we'll probably have a sharp countertrend rally that lasts until spring," he said.
"Even if we go lower, it's good to buy at this point," Newton said.
What to watch
Earnings: McDonald's, Kimberly-Clark, DR Horton, BancorpSouth, Graco, Halliburton, Steel Dynamics, Zions Bancorp
Tuesday — First day of FOMC meeting
Earnings: Apple, AT&T, Procter and Gamble, Coach, 3M, DuPont, Johnson and Johnson, Lockheed Martin, Corning, Capital One, Freeport-McMoRan, Danaher, Stryker, VMWare, U.S. Steel, Parker Hannifin, Siemens, Ethan Allen, Janus, AK Steel, Polaris
9 a.m. S&P/Case-Shiller home prices; FHFA home prices
9:45 a.m. Markit Services PMI
10 a.m. Consumer confidence
1 p.m. Two-year note auction
Earnings: Boeing, Facebook, eBay, Novartis, United Technologies, Anthem, St. Jude Medical, General Dynamics, Norfolk Southern, State Street, Fiat Chrysler, EMC, LG display, Booz Allen Hamilton, Paypal, Qualcomm, Tractor Supply, Vertex Pharma, Discover Financial, Varian Medical, Texas Instruments, Juniper Networks, Murphy Oil,
10 a.m. New home sales
1 p.m. Five-year note auction
2 p.m. FOMC statement
Earnings: Amazon.com, Microsoft, Caterpillar, Celgene, Ford, Blackstone, Visa, Hershey, Nasdaq OMX, Under Armour, Amgen, Bristol-Myers Squibb, Alibaba, Electronic arts, AutoNation, JetBlue, Oshkosh, Eastman Chemical, Northrup Grumman, PulteGroup, Deutsche Bank, Diageo, Johnson Controls, Harley-Davidson, Brusnwisk, Flextronics
8:30 a.m. Initial claims
8:30 a.m. Durable goods
10 a.m. Pending home sales; housing vacancies
1 p.m. Seven-year note auction
Earnings: Chevron, MasterCard, American Airlines, Sony, Xerox, Seagate Technology, Honeywell, Colgate-Palmolive, Air Products, Tyco, A.O. Smith, Simon Property, Autoliv, Newell Rubbermaid
8:30 a.m. Real GDP Q4; international trade; employment cost index
9:45 a.m. Chicago PMI
10 a.m. Consumer sentiment
3:30 p.m. San Francisco Fed President John Williams on panel