Markets in the week ahead will try to size up the economic soft patch that has spooked commodities investors and is driving buyers into Treasurys.
Stocks, so far, have not shown much reaction to worries that the economy is slowing down, with both the Dow and S&P 500 at record highs in the past week.
About a third of the Dow Industrials and 70 S&P 500 companies—across the banking, consumer, pharmaceutical, technology and industrial sectors—report earnings in the week ahead. Investors will mine those reports for any indication of what corporate America expects to see in the coming months, and whether it is confirming expectations for a short-term, mid-year dip in economic growth.
There is a relatively light economic calendar, but the Empire state and Philadelphia Fed surveys will give a fresh look at regional activity, and the Fed releases its beige book on economic activity Wednesday.
Stocks were barely changed Friday, even after a decline in March retail sales and a drop in consumer sentiment, but the yield on the 10-year Treasury retreated to 1.72 percent. The S&P 500 was down 4 at 1,588, and the Dow was down less than one-tenth of a point, at 14,865, giving it a weekly gain of more than two percent. Gold, meanwhile, fell about 5 percent Friday, sinking below $1,500 into bear market territory, while oil dropped more than two percent.
(Read More: Gold Plunges Into Bear Market Territory)
"Commodities are representing another example of just how odd this lack of risk-embracing rally we've seen is," said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management. "While stocks are at all-time highs, a lot of risk indicators are not participating."
Burkly sees that as a sign of trouble for the market, and it is paralleling a disconnect in high-beta stocks, which have been lagging the broader market for the past several weeks.
"It's signaling deterioration. I would say, historically, it's not been good for forward performance of the stock market. You're seeing the same thing in the emerging markets, the underperformance of commodities. Small caps are okay, but not great," he said.
"We think there's 5 to 10 percent downside risk. At 1,475 (on the S&P), we'd be more interested."
Burkly said earnings expectations are fairly flat but he thinks earnings could end up being about three percent higher this quarter for S&P 500 companies. He said technology stocks may do well this quarter, since the expectations are already low and the stocks have been lagging.
(Read More: What to Expect From Big Tech Earnings)
There is a flock of Federal Reserve officials speaking in the coming week, with a good mix of hawks and doves. The Fed has been a major topic in markets since Fed officials began to talk about "tapering" their quantitative easing program. Some Fed officials believe "tapering" the asset purchases could begin in the summer, and the program could be ended by the end of the year, sooner than the market expects.
However, Fed Chairman Ben Bernanke and other dovish Fed leaders have more than balanced that view with comments that the Fed is watching the economy and will do what it needs. The Fed is purchasing $85 billion in Treasury and mortgage securities each month.
The combination of those dovish comments and a recent batch of disappointing economic reports has steered market expectations' to expect the Fed will continue easing until there is a positive change in the economy and jobs outlook.
(Read More: Fed's Rosengren: Growth Better Than Expected)
"We've been getting soft data for the past couple of weeks, and we're still making new highs on the QE story," said Win Thin, senior currency strategist at Brown Brothers Harriman.
Economists expect to see a drop-off in growth in the second quarter, to a level under 2 percent, after growth of 3 percent or more in the first quarter. But some see a pickup coming in the third quarter, and most expect it by the fourth quarter.
"People are listening to the data," said Rick Klingman of BNP Paribas. "We know we have a division at the Fed over when they should taper and when they shouldn't." He said unless Bernanke, New York Fed President William Dudley or Vice Chair Janet Yellen change their views, the comments of other Fed members is meaningless, for now.
Klingman said the markets are watching saber-rattling in North Korea and the tone of news from Europe.
"I think our market has been grinding higher on the idea that supply is out of the way. We have four buybacks," said Klingman. "It's probably a little bit of the 'don't go home short because North Korea hasn't gotten any better,' and we're starting to hear about Europe again and whether Slovenia will be like Cyprus. We're down here at 1.72 (10-year yield). We're definitely pricing in the fact that the data is not going to surprise to the upside anytime soon."
What to Watch
8:30 am: Empire State survey
9:00 am: TIC data
10:00 am: NAHB
8:00 am: New York Fed President William Dudley
8:00 am: Chicago Fed President Charles Evans
8:30 am: CPI
8:30 am: Housing starts
9:15 am: Industrial production
12:00 pm: Fed Gov. Elizabeth Duke
4:00 pm: Minneapolis Fed President Narayana Kocherlakota
Earnings: Bank of America, American Express, eBay, Bank of NY Mellon, Burberry, St. Jude Medical, PNC Financial, Mattel, Abbott Labs, Sandisk, SLM, Textron, Huntington Bancshares, Crown Holdings, Noble, Quest Diagnostics
7:00 am Mortgage applications
9:30 am St. Louis Fed President James Bullard
12:00 pm Boston Fed President Eric Rosengren
2:00 pm Beige book
4:00 pm Treasury Secretary Jack Lew on global economy at Johns Hopkins
Earnings: Google, Microsoft, IBM, Morgan Stanley, PepsiCo, Philip Morris, Advanced Micro Devices, Capital One, Intuitive Surgical, ETrade, Chipotle, United Health, Verizon, Nokia, KeyCorp, AutoNation, Blackstone, Sherwin-Williams, Fifth Third, PPG, Sherwin-Williams, Snap-on, Union Pacific, Amphenol, Nucor
8:30 am: Weekly jobless claims
9:00 am Minneapolis Fed's Kocherlakota
9:30 am: Richmond Fed President Jeffrey Lacker
10:00 am: Philadelphia Fed survey
10:00 am: Leading indicators
12:00 pm: Fed Gov. Sarah Raskin
Earnings: General Electric, McDonald's, Kimberly-Clark, SAP, State Street, UnderArmour, SunTrust, Rockwell Collins, Schlumberger
12:00 pm: Fed Gov. Jeremy Stein