Federal Reserve Chairman Ben Bernanke presides over his final meeting this week and already markets are putting his successor to the test.
The Fed begins a two-day policy meeting on Tuesday, and is expected to announce Wednesday that it will reduce its $75 billion-a-month bond-buying program by another $10 billion. Fed Vice Chair Janet Yellen will be sworn in to replace Bernanke when his term ends on Friday.
Stocks floundered Monday, after two days of searing volatility late last week. The fell 41 points to 15,837 after seesawing for much of the day, and the S&P slipped 8 points to 1781. The was the biggest loser of the three, off 44 points at 4083.
"We just think that this is very similar in a lot of respects to what happened in May and June. You had the first hints of tapering and you had the degree of correction down around 8 percent, which gets you down to about 1700 this time around in the S&P 500," said Julian Emanuel, UBS equity and derivatives strategist.
Emerging markets continued to sell off Monday but there was a respite from some selling pressure after the Turkish central bank said it would meet Tuesday. A deal that kept China Credit Trust Bank from defaulting also helped soothe investors, who feared a failure would ripple through China's shadow banking sector.
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Emanuel does not expect the market's "taper tantrum" to lead to a major correction, but he is watching for a buying opportunity.
"We're telling clients to keep their powder dry," said Emanuel. He said the VIX – the CBOE's volatility index – could spike above 20, which would signal a buying opportunity. On Monday, the VIX was at 17.42, off 4 percent but he said it could go higher.
"We had it in June in the last taper tantrum which is what we think this is. She's (Yellen) being tested," said Emanuel.
Brown Brothers Harriman Chief Currency strategist Marc Chandler said investors are concerned the selloff is not over, and there are some reasons to remain sidelined. "They don't need to rush back in. They have the Fed meeting. They have GDP (gross domestic product) and they have nonfarm payrolls next week."
"We're going to get a decent GDP number. Anything with a 3 handle will be incredible," he said, adding the Fed will have to recognize good growth momentum. But it will also probably recognize a disruption from the unusually cold weather. Third quarter GDP was revised to 4.1 percent growth and the fourth quarter could be more than 3.5 percent, according to some forecasts.
(Watch: Fed preview: Emerging market impact)
Chandler said the Fed will not change its view or even comment on the emerging market selloff. He said it's ironic that emerging markets complained that the Fed's quantitative easing program was adding too much liquidity, and was weakening the dollar too much. Now the complaint is the opposite. "From a U.S. point of view, no matter what we do, the emerging markets are going to whine. The best thing for the world is a strong vibrant, U.S. economy," he said.
What else to watch
Apple's high profile earnings miss could sour sentiment Tuesday, after the stock slumped 7.6 percent in afterhours trading. Apple shares have traded lower on the day after earnings, in five of the last six quarters. Apple earnings beat estimates Monday but weaker-than-expected iPhone sales and a forecast of softer-than-expected revenues in the current quarter spooked investors.
Apple reported earnings of $14.50, well above the $14.07 per share expected, and its sales totaled $57.59 billion, above estimates of $57.46 billion. But its 51 million iPhone sales were about four million short of expectations and its current quarter revenues of between $42 billion and $44 billion are below the $46 billion expected.
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Earnings are expected Tuesday from Comcast, DuPont, Ford, American Airlines, Pfizer, Corning, DR Horton, Illinois Tool Works, and AK Steel before the bell. AT&T, Yahoo, VMWare, Amgen, Act Ltd., Electronics Arts, Cirrus Logic and Freescale Semiconductor are among companies reporting after the closing bell.
There is some economic data of note, including durable goods at 8:30 a.m. ET, the S&P/Case-Shiller home price index at 9 a.m., and consumer confidence at 10 a.m. The Treasury auctions 2-year notes at 1 p.m.
President Barack Obama delivers his State of the Union speech Tuesday evening.
Dan Clifton, head of policy research at Strategas, said there are several sectors that could be impacted by the president's comments.
(Read more: EM turmoil an exclamation point to choppy 2014)
Clifton said Obama will probably make comments about the energy industry and U.S. energy independence, so sectors like wind energy and natural gas could be mentioned. He could also encourage construction of gas pipelines, which would have prevented the tight market conditions that are currently resulting in spiking natural gas prices.
"The president is probably going to push for a minimum wage. That would be a negative for restaurants and retailers," Clifton said.
Another important topic is trade, and he will likely push Congress for approval for Trade Promotion Authority with Pacific Rim trading partners. "Every S&P 500 company that lobbies in Washington is lobbying on these trade agreements," said Clifton, noting they would open new markets for industrial, tech and other companies.
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.