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Politics fade as earnings take over

Even as traders monitor the world's hot spots, corporate earnings news could be a positive for stocks in the week ahead.

More than a quarter of the S&P 500 companies report in the coming week, including a dozen in the Dow 30, like Microsoft, McDonald's, Visa, Caterpillar and Verizon. Tech and Internet names like Apple, Facebook and Netflix also report.

"So far this week, earnings, while dominated by the financials, have been, in general very good, and if next week looks like this week, it's hard to argue the bias shouldn't be to the upside in the near term," said Daniel Greenhaus, global market strategist at BTIG.

Reuters

Market talk this week has centered around a debate over whether the Federal Reserve's easy money and zero rate policy is creating a bubble atmosphere for stocks, and the Fed, itself, wrote in its policy report that small caps, and some biotechs and social media stocks are overvalued as investors stretch for yield. It does not see the overall market as stretched.

Yet, some analysts say the market can keep moving higher for now, with the Fed slowly tapering back on its bond buying and not expected to raise rates until next year.

"There will of course eventually be a top and there will of course eventually be a decline, and the people pointing to these worries will claim victory on that day," Greenhaus said. "For me, I'm waiting for one of the themes driving the bull market to change ... and right now, those things have not changed."

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Friday's relief rally took some of the sting out of a big downdraft Thursday on concerns the shooting down of Malaysia Airlines Flight MH17 would widen the rift between Russia and Ukraine, and Russia and the West. Israel's ground invasion of Gaza also contributed to jittery markets.

"I think this will hang over the market for a little bit," said Robert Doll, chief U.S. equity strategist and senior portfolio manager at Nuveen Asset Management. "There are too many uncertainties to say it's played out." Doll said important to watch will be whether Europe sides with the U.S. in sanctioning Russia.

But Doll also says, absent a geopolitical spark, the market could find the path of least resistance to be higher for now, based on good enough earnings and an improving economy. "If earnings are good, it won't matter," he said, adding though he expects the market to face heightened volatility between now and the end of the year.

Read MoreInvestors take fresh look at old tech names

Larry McDonald, head of macro strategy at Newedge, says there's some warning signs for stocks. He says the market has entered a new phase of volatility, with back-to-back 1 percent moves in the S&P 500 Thursday and Friday after no moves of that size in two months.

One metric he watches is the performance of high-yield debt. In the past month, HYG, the iShares iBoxx USD High Yield Corporate ETF, has lost 1.5 percent. The S&P 500, in the same time frame, is up 1 percent.

"I think the market's a screaming sell short term. If you look at high yield, it's massively underperforming the S&P," he said. "When you see that type of underperformance, 90 percent of the time something's going to happen." Investors have been bailing on high-yield bond funds, just as they have on small caps, another pricey part of the market. The Russell was down 0.7 percent for the week, after a decline of more than 3 percent in the week before.

The Dow was up 0.9 percent in the past week to 17,100, and the S&P 500 rose 0.5 percent to 1,978. The Nasdaq was up 0.4 percent at 4,432.

BMO Private Bank CIO Jack Ablin said he had expected earnings to be a negative catalyst initially. Earnings are expected to grow at about 5 percent, and analysts say the pace needs to pick up for the second half of the year to justify the stock market's gains.

"My original thought is it's a negative because our valuations are so high, but these companies are finding an opportunity to eke out a surprise. I'm finding forward guidance is pretty strong, much stronger than I thought," he said. "I think that if we can pay less attention to earnings and more attention to things that are driving the economy and liquidity, we'll be fine. Earnings will have to catch up. Right now, it's deal fever, liquidity, the Fed keeping their foot on the accelerator and its economy activity."

Of the S&P 500 companies that have already reported, 68 percent have beaten earnings-per-share estimates and 67 percent have beaten revenue forecasts, according to Thomson Reuters.

Bespoke studied the earnings track record of a number of companies reporting in the coming week. It found, for instance, that of the 40 largest companies reporting, Facebook, public for just eight quarters, had a 100 percent record of beating revenue forecasts, and an 88 percent rate of beating earnings estimates. Its stock moved an average 7.2 percent on the day after earnings.

The data also show the McDonald's tends to be one of the bigger disappointments, beating earnings estimates only 46 percent of the time and revenue forecasts 66 percent of the time. Its stock sees an average loss on earnings day of 0.4 percent.

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Lockheed Martin, meanwhile, is one of the better performers, beating earnings estimates 96 percent of the time and 75 percent on revenues, but its stock move is relatively small, an average gain of 0.05 percent. Starbucks only beats earnings estimates 53 percent of the time and revenues 65 percent of the time but its stock averages a 0.9 percent gain.

Monday

Earnings: Netflix, Halliburton, Canadian National Railway, BB&T, Six Flags, Sun Trust, Chipotle Mexican Grill, Texas Instruments, BancorpSouth, American Movil

Tuesday

Earnings: Apple, Coca-Cola, McDonald's, Microsoft, United Technologies, Verizon, Comcast, Travelers, Dupont, Credit Suisse, Lockheed Martin, Electronic Arts, Xilinx, State Street, Domino's Pizza, Kimberly Clark, VMWare, Juniper Networks, Harley Davidson

8:30 a.m.: CPI

9:00 a.m.: FHFA HPI

10:00 a.m.: Existing home sales

Wednesday

Earnings: Boeing, Pepsico, AT&T, Facebook, Dow Chemical, EMC, Gilead Sciences, Qualcomm, General Dynamics, Norfolk Southern, Owens Corning, Omnicare, Praxair, Whirlpool, Delta Airlines, Biogen Idec, Northrup Grumman, STMicro, Freeport-McMoran, Air Products, Ryder Systems, Raymond James, Glaxo Smithkliine, Cheesecake Factory, TripAdvisor, Assurant, Crown Castle, F5Networks, Angie's List

7:00 a.m.: Mortgage applications

Thursday

Earnings: Caterpillar, MMM, General Motors, Ford, Amazon.com, Visa, Starbucks, Bristol Myers Squibb, Eli Lilly, Roche Holdings, Hershey, Dr.Pepper Snapple, Pulte Group, Union Pacific, T. Rowe Price, KKR, Nasdaq Group, Altera, Chubb, Federated, Imax, JetBlue, Pandora, Decker's Outdoor, Kla-Tencor, Baidu, Brunswick, Dunkin Brands, Scholastic, Supervalu, Grubhub, Cabela's,Under Armour, Wyndham Worldwide, Imax, Flextronics, Freescale Semi, Maxim, SolarWinds, Mettler-Toledo

8:30 a.m.: Initial claims

8:58 a.m.: Manufacturing PMI

10:00 a.m.: New home sales

Friday

Earnings: Aon, Xerox, Statoil, Black and Decker, Tyco, AveryDennison, Moody's, Covidien

8:30 a.m.: Durable goods

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.