Data showing the economy barely grew in the fourth quarter could set the tone for markets Friday.
The risk is that GDP could be even weaker than the 0.8 percent growth expected by economists, and while the data are backward looking, the market is already fearful about the economy slowing.
"It didn't seem that weak through the fourth quarter. Yet everyone's got estimates below 1 percent. When you dig down into the number, it just looks like a lot of fluky things are dragging us down," said Stephen Stanley, chief economist at Amherst Pierpont. "I don't think it's going to be persistent. The broader issue to me is it doesn't seem the economy is as weak as the GDP numbers are going to suggest, and I think we'll see a bounce back."
Yet stocks have latched on to negatives, like the Fed's more cautious comments on the economy Wednesday, and there are expectations the market will stumble if the number contains any nasty surprises.
"If it's down because consumption did indeed pull back a lot, and there's a cautiousness by consumers moving away from big-ticket items, that's concerning," said James Paulsen, chief investment strategist at Wells Capital Management.
Stocks rallied Thursday as oil rose and some names took off. Facebook, for instance, surged 16 percent a day after its earnings report, and Amazon.com jumped nearly 9 percent ahead of its after-the-bell report. But the Internet retail giant's results missed estimates, and its stock plunged 13 percent in after-hours trading.
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As the month of January comes to a close, the market will put the miserable early start to the year behind it. The Dow and were on track for January to be their worst month since May 2010. The Nasdaq could end up having its worst month since November 2008, and its decline could be its worst January performance ever.
The market has come off its lows as oil steadied. Crude is up about 14 percent since the end of last week. The S&P 500 reached an intraday low of 1,812 on Thursday, before heading higher. It ended at 1,893, up 10 points.
"I'm still on the fence as to whether we go back down and test those lows again," said Paulsen, who had been expecting the S&P to reach 1,800 in the sell-off. "I think we're seeing a more reasonable multiple of 16 to 17. We've done a good job on two things — sentiment and valuation."
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Paulsen also said he expects to see economic data begin to pick up, and that should be a positive for stocks.
Stanley expects GDP growth of 0.4 percent, even weaker than the consensus reported by Thomson Reuters, but he expects a bounce back in the first quarter.
"I think we'll get back to 2.5 percent or something like that. I don't think we're going to have a violent snapback because I think trade is likely to continue to be a drag in 2016. There's a chance you get a little bit of continued negative impetus from inventories," he said.
Some of the temporary factors that hit the fourth quarter include new mortgage requirements that delayed closings and therefore weakened home sales, Stanley said. He also said consumption spending will look weaker, in large part because of a slowdown in utilities spending due to warm weather. He said inventories, which were too high early in the year, were a drag in the third quarter and should continue to be a hindrance.
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"We've been making progress but I don't think we're through the inventory correction," Stanley said. The impact of weaker oil and gas production will also continue to be a drag, he said.
GDP is scheduled to be released at 8:30 a.m. ET, the same time as both the employment cost index and international trade data. Chicago PMI is at 9:45 a.m. and consumer sentiment is at 10 a.m.
Earnings are expected from Chevron, Colgate-Palmolive, MasterCard, American Airlines, Xerox, Autoliv, Phillips 66, Seagate Technology and AbbVie. Honda and Sony also report overnight.