It's that special time of year, when stock traders say Santa takes the reins.
Stocks should be buoyant in the week ahead, helped by year-end seasonality—or maybe Santa. The "Stock Trader's Almanac" says the official "Santa rally" takes place in the several days after Christmas, but traders expect to see a fairly merry market clear on through December now that the November jobs report is out of the way.
One Grinch that could spoil the stock market rally this coming week is the bond market, should yields rise too quickly. There are a few pieces of economic data, with the most important Thursday's retail sales, and the market will also be digesting $64 billion in Treasury auctions.
"The path of least resistance is still higher for stocks,"said Barry Knapp, head of equity portfolio strategy at Barclays. "There's favorable seasonality, the economy is getting better, and unless the Fed shocks us and starts [tapering] in December, I don't think the market will go down."
(Read more: Does a Federal Reserve taper matter for stocks?)
But the market could get choppy early in the New Year, when equities traders start to take note of the Fed's move away from its $85 billion-a-month quantitative easing program, he said, adding that the Fed could add some language to its December statement that signals tapering.
"I've maintained that equity investors are going to need to get hit over the head with the start of the process before they respond to it," Knapp said.
The 203,000 nonfarm payrolls added in November showed an improving trend but in the view of many traders wasn't enough to push the Fed to slow its bond-buying program at the December meeting. Many Fed watchers expect it to start the process in March, though some say January is possible.
(Read more: Six reasons why 2014 is the year the economy clicks)
Ward McCarthy, chief financial economist at Jefferies, is among those who think December is still in play and that the Fed could start with a small, $5 billion cut in Treasury purchases when it meets Dec. 17 and 18.
"I think from a communication and credibility standpoint, this is the time," he said. "They've got a perfect reason to start really gently and send a strong message to the market that this is nothing to fear."
McCarthy is focused on retail sales in the coming week. He expects to see a jump of 0.6 percent, based on the strong November auto sales.
"Right now, the market is obsessed with tapering, so the data is going to be what matters most," he said. "The employment numbers in my mind suggest they've got to get started."
But the stock market will be watching the bond market's reaction to data as much as the data itself. Stocks sold off as yields rose several days this past week, before rallying Friday after the jobs report. The10-year yield was at 2.86 percent in late trading Friday.
The Fed will be in the market, buying about $4.5 billion in longer-duration securities Monday, followed by the $30 billion 3-year note auction Tuesday, the $21 billion 10-year auction Wednesday and the $13 billion 30-year auction Thursday.
Much attention also will be paid to three Fed speakers Monday: St. Louis Fed President James Bullard, Dallas Fed President Richard Fisher and Richmond Fed President Jeffrey Lacker.
"The real test is going to come with the auctions themselves, and I think the Street's going to try to eke out a concession," said David Ader, chief Treasury strategist at CRT Capital. Short covering helped reverse a decline in the 10-year on Friday. As a result, yield moved off its high of the day of more than 2.9 percent right after the jobs report.
Stocks finished the week basically flat. The Dow and S&P 500 were lower for the first time in eight weeks. The Dow was off 0.4 percent at 16,020, while the S&P was off 0.04 percent at 1,805. The Nasdaq was barely positive, up 0.06 percent at 4,062. The big mover was the Russell 2000, down 1 percent for the week at 1,131.
Knapp said he will be watching the shorter end and belly of the Treasury curve to see if the market begins to price in rate hikes, now that it is warming to the idea that a Fed taper is on the horizon. The Fed has asserted it has no plans to raise short-term rates anytime soon, and it is not expected to move until 2015.
The Fed is expected to use the strategy of stressing that it will keep short-term rates lower for longer, hoping to dissuade investors from viewing its tapering of bond buying as a tightening.
Knapp said the futures market is not pricing in more normal 4 percent rates until 2018.
(Read more: Top true-growth stocks for next year: Pro)
"I think the rate-hike cycle will be more aggressive than it's currently priced," he said. "The five-year part of the curve could really sell off sharply."
Emerging markets also bear watching, he said. "I'm hard-pressed to find any investors that are bullish on emerging markets. … I can't imagine they'll have many friends when the Fed starts the process."
What else to watch
Markets will also focus on Washington, where budget conferees hope to get a deal in the coming week and bring it to a vote. That could signal a turning point in what has been a constant series of congressional clashes and set a course for the budget for the next two years.
Financial stocks will be in the spotlight. On Tuesday, the Securities and Exchange Commission, the Commodity Futures Trading Commission, Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. vote on the Volcker Rule, which would ban proprietary trading at banks and limit investments in hedge funds.
Executives from Bank of America, JPMorgan and Wells Fargo are among those presenting at a Goldman Sachs conference Tuesday and Wednesday.
There are also a handful of IPOs in the coming week, including a $2.4 billion Hilton Worldwide offering.
12:30 p.m. Richmond Fed President Jeffrey Lacker
1:05 p.m. St. Louis Fed President James Bullard
2:15 p.m. Dallas Fed President Richard Fisher
6:30 p.m. Dallas Fed's Fisher
7:30 a.m. NFIB small business survey
10:00 a.m. Wholesale trade
10:00 a.m. JOLTS survey
1:00 p.m. $30 billion 3-year note auction
7:00 a.m. Mortgage applications
1:00 p.m. $21 billion 10-year note auction
2:00 p.m. Federal budget
8:30 a.m. Initial claims
8:30 a.m. Retail sales
8:30 a.m. Import prices
10:00 a.m. Business inventories
1:00 p.m. $13 billion 30-year bond auction
8:30 a.m. PPI
—By CNBC's Patti Domm. Follow here on Twitter