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Stock-market bulls face hurdles in the week ahead

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A wave of earnings news and the Federal Reserve's two-day meeting should dominate market talk in the coming week as investors sort through a batch of data that was delayed by the government shutdown.

About a quarter of the companies report earnings, with Apple Monday, Facebook and General Motors on Wednesday, and Exxon Mobil Thursday. Visa releases its first earnings report as a member of the Dow on Wednesday.

The Fed is not expected to take any action at its meeting Tuesday and Wednesday, though it could tweak the language in its statement to acknowledge the economic uncertainty created by the 16-day government shutdown.

As for the delayed economic reports, retail sales for September will be issued Tuesday and producer and consumer inflation data are expected Tuesday and Wednesday. The October jobs report, originally scheduled for Friday, has been delayed for a week until Nov. 8 though there are private-sector jobs data from ADP and Challenger on Wednesday.

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"I think we could be in for some choppy waters here," said Ward McCarthy, chief financial economist at Jefferies. "The (government) numbers we have coming out are not going to have the same degree of integrity that the data typically has because raw data will be collected at different times than it's usually collected. That could affect the quality of the data and it also puts seasonal adjustment factors into a more questionable light, as well. There's clearly more risk than normal of data releases significantly different than expectations and the problem is no one will really know how to interpret that."

McCarthy expects retail sales to be up 0.1 percent, and up 0.3 percent excluding autos. As for the Consumer Price Index, he expects a 0.2-percent increase. "The CPI is very complicated. The data-collection process was disrupted. That's the number I'm worried about the most in terms of quality of data, but it should be pretty tame," McCarthy said.

Earnings central

Earnings season so far has been fair, but good enough to keep the stock market moving higher. "Earnings are number one for me," said Steven Wieting, global chief strategist at Citi Private Bank. "If there's a reason why we can continue to make headway here to the upside, it's the fact that we never really discounted the surge in earnings that we had early in the recovery."

With the price-to-earnings ratio of the S&P 500 above 16 percent, slightly higher than its long term average, traders have been debating the market's valuation and how much higher it can go if the pace of earnings growth does not pick up.

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Third-quarter earnings have been slightly better than expected, with growth of 6.8 percent for the S&P 500 companies that have reported. According to Thomson Reuters, 68 percent of the 243 companies reporting as of Friday have beaten earnings estimates and 54 percent have beaten revenue estimates.

"We don't think profits will accelerate. We think they will grow moderately since they've led the expansion. This earnings season went from a slow start to above average," Wieiting said. He said stock-market gains next year could be half this year's 23.4 percent increase so far in the S&P 500. "We're still optimistic on the next one to two years, and think we have above- average long-term returns for equities."

Wieting said he does not see the price-to-earnings ratio as being too high at this stage, and notes that stock prices are just now beginning to reflect prior earnings growth.

"We've got to bear in mind there's this underlying bearishness and cautiousness that's thawing out," he said. "We've done a lot of improvement in terms of safety and sustainability. The decline in consumer debt burden, corporate balance sheet deleveraging — all those things we've had to absorb, keeping this recovery slow and modest. The important thing is you get some safety, sustainability and durability. We're not overextended, we're growing back."

Analysts have been worried that earnings expectations for the fourth quarter are too high. Last week fourth-quarter growth was estimated for the S&P 500 companies at 10.3 percent, but now it has fallen to 9.5 percent and it is expected to continue to drop as companies discuss their outlooks.

Factset data also shows that corporate outlooks are overwhelmingly bearish, with just one positive outlook for every six companies that commented negatively this quarter.

Analysts are mostly bullish for stocks heading into the end of the year though there are some warning signs traders are watching.

(Read more: Five warnings signs that stocks could be getting too bubbly)

Stocks had a good run this week: The Dow rose 1.1 percent to close out the week at 15,570; the S&P gained 0.9 percent to 1759, and the Nasdaq advanced 0.9 percent to 3383. In terms of sectors, gains were led by industrials, up 2.2 percent for the week, while the financials were the worst performer, down 0.4 percent. Treasury yields were lower, with the 10-year at 2.51 percent Friday.

Fed ahead

The Fed's two-day meeting will be closely watched, since market views of when the Fed will "taper" back its bond buying are widely varied. When the Fed did not act to pare back its $85 billion bond-buying program in September, many Fed watchers were surprised and markets were shocked.

After the Oct. 1 government shutdown, expectations quickly shifted to the Fed being on hold for a lot longer, possibly tapering in December but more likely March or later. That helped give lift off to an already rising stock market and helped bring in Treasury yields, already responding to expectations of slower economic growth.

"The action the Fed will take? None. There are insufficient data. There is sufficient uncertainty," said Tony Crescenzi, senior strategist at Pimco. Crescenzi said by delaying in September, the Fed has actually gotten the market reaction it was seeking — lower interest rates and better financial conditions. "In the final analysis what the Fed wants to do is suppress interest-rate volatility by demonstrating its patience, with no reduction and the eventual removal of policy accommodation."

If anything, the Fed could comment on economic uncertainty stemming from the government shutdown. But it may also adjust the way it has tied short-term rates to unemployment. The Fed has said it could look to raise short-term rates when unemployment falls to 6.5 percent, but the economy is still slow-moving and unemployment has already dropped to 7.2 percent.

"They'll probably tinker with the rate-guidance language and they may do this gradually — backing away from the 6.5-percent unemployment threshold and take a more holistic approach to the employment market," said McCarthy.

Crescenzi said the Fed may wait to make that move until December, when there is a press briefing where Fed Chairman Ben Bernanke could explain the change.

Crescenzi said the markets may have gotten ahead of the Fed and are pricing in a too easy Fed for too long. Many Fed watchers are targeting March as the date for Fed tapering, which would be the first meeting run by the new Fed chair. Some are looking out to June.

Mesirow Financial chief economist Diane Swonk said it's not likely the Fed reduces bond buying before next year, but she said it will not wait too long either.

"I think we have to absolutely take into account not just efficacy issues," she said. "It's also political backlash. That is not an insignificant issue for the Fed." Critics of the Fed have it risks creating inflation or asset bubbles with its easy money policies.

"They cannot ignore their need to reserve their independence," she said.

One Fed critic, Sen. Rand Paul, R-Ky, is considering placing a hold on the nomination of Fed Vice Chair Janet Yellen, selected by President Obama to replace Bernanke when his term ends in January. Yellen must be approved first by the Senate Banking Committee. That committee is expected to hold a hearing on her nomination in November. The White House Friday said Yellen's paperwork has been submitted to the Senate and she will begin meeting senators next week.

Paul is expected to try to use the nomination as a way to force a vote on legislation that would authorize the Government Accountability Office to audit the Fed's monetary policy.

"It was expected," said Crescenzi, adding Ryan is not expected to succeed. "It will have no effect on the process except maybe to slow it."


Earnings: Apple, Merck, Biogen Idec, Boardwalk Pipeline, General Growth Properties, Hartford Financial

09:15 AM - Industrial production

10:00 AM - Pending home sales (Sept)

01:00 PM - $32 billion 2-year Treasury auction


Earnings: Pfizer, Aetna, BP, Deutsche Bank, Goodyear Tire, JetBlue, Nokia, U.S. Steel, Valero Energy, Thomson Reuters, Valero, Aflac, UBS, Buffalo Wild Wings, Cabot, Dreamworks Animation, WebMD, Waste Management, Shutterfly, LinkedIn, Yelp

FOMC 2-day meeting begins

08:30 AM - PPI (Sept)

08:30 AM - Retail sales

09:00 AM - S&P/Case-Shiller home prices

10:00 AM - Consumer confidence (Oct)

10:00 AM - Housing vacancies

01:00 PM - $35 billion 5-year Treasury auction


Earnings: Visa, Comcast, Booz Allen Hamilton, Barclays, Facebook, Corning, General Motors, Honda Motor, Hess, Southern Co, Allstate, Expedia, Boston Beer, MetLife, Marriott, Kraft Foods

08:15 AM - ADP employment

08:30 AM -CPI (Sept)

01:00 PM - $29 billion 7-year auction

14:30 PM - Fed statement


Earnings: Exxon Mobil, Royal Dutch Shell, ConocoPhillips, A-B InBev, Starbucks, AIG, MasterCard, Cigna, Time Warner Cable, Sony, Total, Discovery Communications, New York Times, Newmont Mining, Advance Auto Parts

08:30 AM - Weekly jobless claims

08:30 AM - Personal income (Sept)

09:45 AM - Chicago PMI

01:00 PM - 7-year auction


Earnings: Chevron, Washington Post, CBOE Holding

Monthly auto sales reported by manufacturers

08:00 AM - St. Louis Fed President James Bullard

08:58 AM - Manufacturing PMI

10:00 AM - ISM Manufacturing

10:00 AM - Construction spending (Sept)

11:15 AM - Minneapolis Fed President Narayana Kocherlakota

*October employment report was delayed and will be reported Nov. 8

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