As the second quarter kicks off, many analysts believe it's a given that neither the stock market nor the economy will do as well as they did in the first quarter.
The coming week will give the bulls a lot to think about, with the March jobs report, auto sales and manufacturing data set to be released. Plus, central-bank meetings in Japan and Europe.
"Through the first quarter, there was the dual support of renewed liquidity, in addition to growing optimism that economic growth would improve throughout the year," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities. "Liquidity is still there, and it's still supportive on the growth side…but the growth story gets a little more questionable."
(Read More: After April Showers, Market Could Bounce Back)
The stock market starts off April with both the S&P 500 and Dow at record highs. After threatening for several sessions, the S&P finally hit its high on the last trading day of the quarter, closing out at 1569. The index was up 0.8 percent for the week, and is up 10 percent for the first quarter. The Dow also had a very good quarter, ending at a record 14,578 and up 11.2 percent, its best first quarter since 1998. The Nasdaq gained 8.2 percent in the first quarter to 3267.
(Read More: Rally Like a Broken Record as S&P Scores New High)
Of course, it's inevitable when you're hanging out in record territory to start wondering when the party will end.
"There's still a sense that this rally and uptrend is getting a little long in the tooth. I think this is the signal that the easy gains are probably made," said Adams.
"I like defensives. My overweights are health care, staples and utilities. Health care and staples are the two best sectors in the market. I think investors are getting increasingly defensive," she said.
Both the S&P health care and consumer staples sectors were the market leaders in the first quarter, up 15 percent and 13 percent, respectively.
(Read More: Defensive Sectors Can Be Leaders in a Rising Market)
Still, many strategists remain bullish on stocks longer-term, with many upping their S&P forecasts in recent weeks to 1600 or better amid expectations that the economy and stocks will improve in the second half.
This week brings the March jobs report on Friday, which is of particular interest since employment is an important gauge for the Fed in evaluating its easing programs.
Economists expect 197,000 jobs were added to nonfarm payrolls in March, down from 236,000 in February, and for the unemployment rate to hold steady at 7.7 percent, according to a consensus estimate from Thomson Reuters.
Mark Zandi, chief economist at Moody's Economy.com, said he expects a gain of 205,000 jobs and a 7.8-percent unemployment rate.
"For the payroll numbers, we're at a two-handle so it feels good and would be consistent with the jobs gains we've been getting over the past three to six months. That's strong enough growth, and if sustained would push the employment number lower," Zandi said.
He expects the economic reports to start showing temporary weakness in the coming quarter as government-spending cuts start to impact the economy. Federal spending will drop by more than $40 billion through the end of the fiscal year due to the"sequester," or automatic spending cuts that were created as part of the debt-ceiling compromise.
Zandi said he'll be watching jobless claims, which crept up to 357,000 in the past week. "If the economy is going to slow because of budget-cutting, you would anticipate claims moving north of 350,000 in the next couple of weeks," he said.
"I expect the real test [for the economy] to come in the May, June, July, August period…I've been surprised at the economy's resilience so far this year, in the face of the tax increase and some spending cuts. I was expecting weakness but it hasn't happened yet," he said. He said first-quarter growth is tracking at about 2.4 percent, but he expects to see the second quarter to be weaker, closer to 1.5 percent.
"The private economy is doing well. I think that's a good way to characterize it. It should do consistently better. A lot of that is being led by the housing economy," he said.
But Zandi, like many other economists, expects it to be a temporary dent to the economy and stock market and that things will improve later in the year.
First-quarter earnings may bring some disappointment and that could trigger selling but there aren't really any long-term negatives for the market, said strategist Laszlo Birinyi, president of Birinyi Associates.
"We're going to have a little bit of a hiccup," Birinyi said, adding that the return to record territory for stocks isn't a big deal.
"That's sort of like taking a car ride with the kids. You cross the state line and for ten minutes before, and ten minutes after, you're excited, and then you start to look for the next McDonald's," he said.
Central Banker Watch
Besides the U.S. data, there are a number of central bank meetings in the week ahead. The Japanese Central Bank meets for the first time Wednesday and Thursday with newly named Haruhiko Kuroda at its helm.
"Next week's meeting is the one where everyone thinks they're going to launch their QE (quantitative easing)," said George Goncalves,Treasury strategist at Nomura Americas. "The speculation...is that he's going to make good on his promise for more aggressive action. The question is, is he going to over deliver or just meet expectations?" The prospect of a new round of easing has been a big catalyst for Japanese stocks, up almost 20 percent for the quarter.
The European Central Bank meets Thursday, and Goncalves expects a conservative approach from the ECB.
"I think the ECB is not going to try to draw attention to new initiatives," he said. "They don't know what's going to happen. It's super fluid, and it's a long weekend. A lot could change between now and Monday, while people keep taking money out of the banks."
The ECB helped structure a rescue plan that gives Cyprus a 10 billion euro bailout while forcing it to restructure its banks. It closed one bank and restructured another, penalizing uninsured depositors, and imposing capital controls. The controls, including limits on withdraws, are an effort to slow the flight of capital from Cypriot banks.
(Read More: )
"It's a very tricky week next week," said Goncalves. In the past week, buying in Treasurys drove yields lower, in a flight-to-safety play but also due to quarter-end buying. The 10-year was yielding 1.85 percent late Thursday.
"The jobs number could create volatility, in that we're in the lower end of the yield range again. There could be some give-back in yields, as we head into the jobs number, and into the Japan story, and into the European Central Bank outcome. If things were to stabilize in Europe, and the jobs numbers are decent, we could get back to the lower 1.90s," on the 10-year, he said.
Week Ahead Calendar (all times Eastern)
8:58 am Manufacturing PMI
10:00 am ISM manufacturing
10:00 am Construction spending
Monthly auto sales
10:00 am Factory orders
First day of Bank of Japan meeting
8:15 am ADP employment report
10:00 am ISM nonmanufacturing
10:30 am Oil inventories
Second day of Bank of Japan meeting
07:00 am Bank of England announcement
07:30 am Challenger job cut data
07:45 am European Central Bank announcement
08:30 am Jobless claims
10:30 am Natural gas inventories
10:30 am Fed Chairman Ben Bernake at University of Dayton Arena, brief comments on financial and economic education
05:00 pm Fed Vice Chair Janet Yellen speaks on monetary policy to Society of American Business Editors and Writers
8:30 am Employment report
8:30 am International trade
3:00 pm Consumer credit