You may think it's all about the Fed in the week ahead, but other key economic news will keep the markets on edge.
The Fed is expected to trim the target Fed funds rate by a quarter point, holding the line at 2 percent in its 2:15pm ET announcement Wednesday. Traders have conceded the Fed's current easing binge appears to be at an end, and some expect the Fed to signal that possibility in its comments.
Data to watch includes first quarter GDP Wednesday, reported in the morning ahead of the Fed's afternoon decision. The first quarter number is expected to show 0.6 percent growth, but if there's a negative surprise, it will certainly get the market's attention.
Friday's jobs report for April, though, could be a much bigger event.
"It's a huge deal. The Fed and GDP are more a foregone conclusion at this point, but the jobs report is a first glimpse at where we go next," said Diane Swonk, chief economist at Mesirow Financial. She expects a decline of 20,000 to 30,000, while the street estimate is for a loss of 75,000.
"I would not be surprised if the decline subsides substantially." said Swonk. "In the next couple of months, we'll see a trough," she said, adding the unemployment rate, a lagging indicator, could hit 5.5 percent by mid-year.
There's another big rush of corporate earnings reports in the week ahead, including from big oil and media companies.
Other economic data on the calendar includes consumer confidence for April, released Tuesday, and the S&P Case Shiller report on housing prices. On Wednesday, ADP's employment report is issued at 8:15am, the employment cost index is released at 8:30am, and Chicago PMI is released at 9:45am ET.
Weekly jobless claims are reported Thursday, as is personal income and expenditures, ISM manufacturing and construction spending. The auto industry releases April sales Thursday, and factory orders are reported on Friday.
Also this week, the first stimulus rebate checks should reach the hands of consumers. "I'm calling it the Wal-Mart windfall," Swonk said. She expects the peak benefit from the checks to impact the economy during the summer months.
There's a lot of debate over how much the $100 billion or so in rebates will stimulate the economy. Swonk says even if consumers initially use the rebates to pay down debt, they might then use their freed up credit for other purchases later on.
Sell in May?
The old adage is certainly one we all know, but this has not been a normal year. And if you think back to last May, the market was still ignorant of the extent of damage from the subprime tsunami.
Lately though, strategists have a better view about the market in general. The Bear Stearns rescue is pointed to as a moment of transition for the stock market.
The Dow in the past week had its up and down moments, but without the wild gyrations of the not-so-distant past. The Dow rose 42.50 or 0.3 percent for the week to 12,891.86, its highest close since Jan. 3. The Nasdaq was up 19.96 points or 0.8 percent to 2422.93, and the S&P 500 rose 7.51 points, or 0.5 percent to 1397, its highest close since Jan. 14.
Commodities, usually on fire, were under fire in the past week as the dollar strengthened. The dollar finished the week up 1.4 percent against the euro, at $1.5596 per euro, the highest close since March 24. Gold fell $25 per troy ounce on the week, or 2.7 percent to $887.20.
At the same time, the 10-year fell by a full point and is yielding 3.866 percent. The two-year also sold off, taking its yield to 2.423 percent, its highest yield since Jan. 17.
Thomas Lee, JPMorgan's chief U.S. equities strategist, told me this week he thinks there are a lot of catalysts for stocks in May. One factor is that stimulus package. He says the economy may feel more effect in the second quarter than previously expected, because electronic delivery will get money into the hands of consumers sooner than some had expected. JPMorgan Friday went to a slight overweight on consumer discretionary stocks.
Lee said many companies in the sector have not even factored in the benefit of the rebates into their second-quarter forecasts, and that could result in a surprise. (Click to seewhich stocks benefit from rebate checks.) "Inventory levels have been burning off," he said.
Lee says the improvement in credit markets is also driving stocks, but one wild card remaining for stocks and the economy is oil.
Currently, the average portion of a worker's pay going to energy is the same as it was in 1973, when energy prices helped trigger a recession. He said the average worker has to work 16 days to pay for energy costs when oil is at $90 per barrel. (Oil closed Friday at $118.52 per barrel.) In 1979, the average worker had to work a full month to pay energy costs.
"We're finally at the point where it's causing long-term changes," he said, but he noted some of those changes were positive for the economy, like alternative energy.
He said another plus for the markets would be if the Frank-Dodd mortgage plan is accepted.
For the year, Lee expects the S&P to finish at 1450, and if the financials recover, the index could push closer to 1550.
So far, 246 companies in the S&P 500 have reported earnings. Of those, 63 percent have come in above expectations, and 25 percent have been below analysts' estimates.
Big oil and media companies are among the companies reporting in the week ahead.
Of the energy companies and utilities reporting, Ashland, Royal Dutch Shell, BP, and Valero report Tuesday, while Murphy Oil, First Solar, Hess and Sunoco report Wednesday; Exxon Mobil , Marathon Oil, Dominion Resources and Williams Cos, reports Thursday and Chevron and Duke Energy report Friday.