The road higher for stocks is likely to be a slower, more difficult climb that could get bumpy along the way.
For that reason, a number of strategists have been recommending investors steer clear of lower quality stocks and focus instead on those with better balance sheets for this next leg of the trip.
In the week ahead, markets will be tested by a fresh batch of economic news and will be dominated by the debate over whether the dollar's behavior signals the beginning of a turn for the greenback. Fed Chairman Ben Bernanke is in the spotlight Monday when he speaks at the Economic Club of Washington, and President Obama is expected to unveil a new plan to promote job creation Tuesday.
Retail sales, international trade and weekly jobless claims are some of the important numbers to watch. The Treasury is auctioning $74 billion in 3-years, 10-years and 30-year bonds Tuesday, Wednesday and Thursday.
BlackRock Vice Chairman Bob Doll sees the stock market going higher but he says investors should be careful and invest a bit more defensively. He also said any correction would tend to be relatively shallow because of the uninvested cash on the sidelines, waiting to buy dips, and the fact that the recovery and bull market are in early stages.
"Here are the things that bug me a little bit. We've been churning for six or seven weeks. We've gone nowhere. Leadership? Where is it? Financial stocks have been underperformers. Volume has slowed noticeably," he said. Other concerns are that the broader Value line index has been trailing the S&P 500, meaning investors are becoming more discerning and are moving into higher quality names.
"Economic news has turned mixed from more positive. Bank credit contraction continues. Sentiment is still constructive but not as constructive as it was," he said.
"If the market closes out the year at our 1000 to 1050 (S&P) target, or where it is now, or a little higher or a little lower, people will look back at this year and go "whew"—A double digit gain after all that turmoil is a good thing," he said.
The year end is also a factor for investors. "I think we'll see rallies that are being met by sellers that want to close out their books for the end of the year," said Jefferies managing director Art Hogan.
"If you have to be invested, things are going to be more volatile. There was a period of time where the market was going to go up and you could put more risk in your portfolio. Now is not the time to do that," Hogan said.
Stocks ended the past week higher, with the Dow up 0.8 percent at 10,399 and the S&P, up 1.3 percent at 1105. On Friday, markets broke free of the so-called "risk trade," where the dollar declines in the face of good news for the global recovery, and risk assets, like stocks and commodities, rise. The catalyst was the much better-than-expected November employment report—which showed the loss of just 11,000 non farm payrolls and a lower unemployment rate of 10 percent.
The dollar shot higher Friday, and the stock market also ended slightly higher. Bonds were under pressure and rates rose. The Dow traded both higher and lower in a 200 point-range but finished with a gain of 78 points. Commodities were mostly lower Friday, and gold was hit very hard, losing 4 percent to $1168.80 per ounce, after days of gains.
Financial shares were among the week's winners, gaining momentum to finish up 2.4 percent, after Bank of America's $19 billion secondary offering Thursday. Material stocks were up just a half percent and energy was down 1.6 percent. Both groups were hit by dollar-related selling Friday. The week's top group was the defensive utilities sector, up 3.9 percent.
"I don't want to abandon cyclicals because we are in a global recovery and fairly early on," said Doll. "I do think people who have had some of that can take a little money off the table and add a little quality to the portfolio. By that, I mean one less metal stock and one more health care stock." Doll said he is looking for companies with good cash flow that are in a good position to increase or initiate dividends.
"The path of least resistance is up, but it's going to be harder. It's going be more about the economy and earnings...and less about liquidity," Doll said.
Perhaps the most interesting currency trade in the past week surrounded the yen. The Japanese government had its way, as the yen tumbled 4.5 percent against the dollar, reaching a level of 90.51.
"I don't think this is a turning point for the dollar broadly," said Rebecca Patterson, head of global foreign exchange and commodities for J.P. Morgan Private Bank. "I do think this past week may have marked a turning point for dollar/yen."
"Exports are down year-over-year in Japan. Their stock market is down dramatically. I think they are honestly worried about the yen," she said.
Patterson is also down on the euro. "We're looking for a top in the euro in the low to mid $1.50s," she said. "We think both the euro and yen are extremely overvalued...that the fundamentals in those countries are, to different degrees, not great," she said. The euro lost 0.8 percent against the dollar this past week, finishing at a level of $1.4846 per euro.
Some market pros have been expecting the dollar to turn higher and have said stocks could rise at the same time if the move is based on a strengthening of the U.S. recovery.
But Patterson expects the dollar to under perform against a whole range of other currencies, including the commodity currencies and especially the currencies of emerging Asia.
"I think it's too much to read much into a single (jobs) number or anything else happening to a market on a Friday, especially near year end," said Patterson.
The data calendar is heaviest at the end of the coming week. Monday is consumer credit; Tuesday has the NFIB small business survey, and Wednesday is wholesale trade. On Thursday, weekly jobless claims are released, as is international trade and the federal budget. Retail sales for November, import prices, consumer sentiment and business inventories are reported Friday.
Bernanke's speech Monday will be of big interest, but it is unlikely the Fed chairman will have anything new to say after his lengthy testimony Thursday, according to Joseph Brusuelas of Moody's Economy.com.
Brusuelas said he expects the November retail sales number to show an 0.8 percent increase and 0.5, excluding autos. Chain store sales for November were disappointing, signaling a weak start to the holiday shopping season.
Brusuelas said he expects only a modest gain for holiday sales but he said the November sales number may not reflect all of the online shopping activity. "There's some uncertainty with respect to Cyber Monday—whether they're capturing the sale at point of purchase or when the goods are shipped," he said.
"What we're seeing is consumers are spreading out their holiday spending," he said, adding a recent survey found that 15 percent already completed holiday purchases. "Retailers wisely anticipated this and began discounting well ahead of the holiday spending season. This makes sense because people are under stress and are into the process of deleveraging."
Brusuelas said the Friday jobs report has not caused him to change any of his other forecasts. "Although there were not glaring weaknesses in the report today, the underlying detail suggests a continued rise in unemployment. The economy is still shedding jobs, and it's likely to do so for a couple more months," he said.
In addition to Bernanke, New York Fed President William Dudley is speaking in the early evening Monday in New York.
Climate change will be a big topic in the next two weeks as the United Nations Climate Change Conference convenes in Copenhagen. President Obama is expected to attend during the second week. On Monday, the Commerce Department and Department of Energy announce initiatives to advance green technology innovations and create jobs, in advance of the UN conference.
Next week is a light one for quarterly earnings reports, with AutoZone , H&R Block , Kroger and Costco among the most prominent results expected.
— Questions? Comments? marketinsider@cnbc.