Like thunderstorms cooling an overheated landscape, more selling could rumble through the stock market in the coming week.
Earnings, Fed speak, growing tensions between Ukraine and Russia, and some important data, such as March retail sales Monday and industrial production Wednesday, will be key in what could be a very volatile, holiday-shortened week. About 50 S&P 500 companies are expected to report—including Bank of America, Google, Intel, Coca-Cola and Johnson & Johnson.
Also closely watched will be a speech by Fed Chair Janet Yellen at the Economics Club of New York Wednesday afternoon. Markets are closed on Good Friday, and trading is expected to be thin because of the Passover and Easter holidays.
Traders are closely watching developments in Ukraine, where gunfights broke out Sunday as police battled pro-Russian militants for control of a local police station. The U.S. Ambassador to the United Nations, Samantha Power, said Sunday morning that the U.S. could increase sanctions.
"I think the selloff is closer to the end than the beginning. I think the U.S. equity market is likely to reassert itself," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. "When I think about the fundamental drivers, what has changed? Prices, sentiment. That could feed on itself. All of this comes in the context of a fairly valued market…Within that fairly valued market, this type of volatility is fairly common."
The market selloff, which started in the high fliers several weeks ago, has spread to the broader market, and investors continue to toss out growth names. The Nasdaq was by far the worst performer in the past week, losing 3.1 percent to 3,999, for a more than 8 percent slide since its early March high. Momentum names were crushed, with the healthcare sector leading the broader market's decline. Biotechs were at the heart of the selling, declining with other momentum stocks in the Internet and social media sectors.
The S&P 500 fell 2.6 percent for the week to 1,815 in its worst weekly performance since June 2012. The Dow was off 2.4 percent at 16,026. The financial sector was right behind health care, losing 4 percent for the week. One of the first big earnings disappointments was JPMorgan Chase, which missed expectations Friday and saw its stock fall nearly four percent.
But Grohowski expects a more positive story for earnings this quarter, though companies are likely to blame weather and softer China demand if there are shortfalls.
"I don't think earnings are likely to be the catalyst for a big upside move, but I do think earnings have the potential to be a calming influence particularly since expectations have come down in a big way over the last couple of months," he said.
Earnings are expected to grow just 1 percent this quarter, and Julian Emanuel of UBS said expectations for a flat quarter may be behind some of the selling in stocks, particularly for growth names.
Hedge funds were also behind the selling, he said, "... which in our mind is why emerging markets have been rallying. The fact is, the whole world has been underweight—the emerging markets for two years. It's been a successful trade. That underweight (position) is being addressed at the same time the overweight (in growth stocks) is being addressed," said Emanuel, U.S. equity and derivatives strategist at UBS Securities.
Emanuel does not expect the selling to come to an end until the S&P 500 moves several percent lower. He also expects a level of 20 on the VIX, to signal a buying opportunity. The VIX, the CBOE volatility index, is viewed as a gauge of market fear and was at 17.03 Friday, up more than 7 percent on the day.
"Our view is the last leg of this, which is where you're going to get the last spike in the VIX, over 20, is when you approach the 200-day (on the S&P) which is 1,760," he said.
Emanuel said concern about Fed policy is also behind the selloff. The Fed has created uncertainty not only by tapering its bond buying program but with its outlook for short-term rates. "Positions are too large in light of the Fed policy uncertainty. In early March there was a concern the Fed would be more aggressive. This week, we hear now, maybe there's a deeper fear of the (slower) inflation than was otherwise presumed," he said.
Economic growth has been one of the big concerns in the market, as traders wait for each piece of data to prove that the winter's doldrums had more to do with weather than anything else. For that reason, Monday's retail sales, expected to rise 0.8 percent, will be an important number.
Fed Chair Janet Yellen's comments will also be important after the Fed minutes this past week erased some concerns that the Fed would move more aggressively to raise interest rates. Those minutes also sent bond yields lower, nearly eliminating a move higher in shorter end yields since the March 19 meeting.
The 10-year Treasury yield, meanwhile, also moved lower and was being observed across markets, as it flirted with 2.60 percent, a closely watched level near the bottom of a range it has been in for months. Stock traders were monitoring the movement with some trepidation as a signal of a flight to safety trade.
Bond strategists at Nomura Securities said in a note that they expect the market to challenge the 2.6 percent level "but in order for that to happen, stocks will need to lead the charge (even lower than the past week's re-pricing) and/or data have to disappoint expectations for a rebound, we believe. That said, we are placing high probabilities that the next few weeks will see data miss expectations and earnings from companies come in on the weaker side, driving stocks lower."
The market could correct some 7 to 8 percent, in line with the January selloff, he said. "It feels to us like the position reduction needs to go on longer. There's also an element of selling of winners that could be associated with tax season," he said. "We don't want to be anticipatory here. We'd rather let the market tell us when it looks like a better risk/reward profile and that VIX will be one of those signs."
What to Watch
Earnings: Citigroup, JB Hunt Transportation, Pinnacle Financial
8:30 a.m.: Retail sales
10:00 a.m.: Business inventories
2:00 p.m.: Fed Gov. Daniel Tarullo
8:30 a.m.: CPI
8:30 a.m.: Empire state survey
8:30 a.m.: Atlanta Fed President Dennis Lockhart
8:45 a.m.: Fed Chair Janet Yellen opening remarks at Atlanta Fed conference
9:00 a.m.: TIC data
10:00 a.m.: NAHB survey
3:00 p.m.: Philadelphia Fed President Charles Plosser, panel at Atlanta Fed conference
4:00 p.m.: Boston Fed President Eric Rosengren
8:00 p.m.: Minneapolis Fed President Narayana Kocherlakota
Earnings: Google, Bank of America, IBM, American Express, PNC Financial, Capital One, Credit Suisse, US Bancorp, Huntington Bancshares, SLM, SanDisk, Steel Dynamics, Abbott Labs, St. Jude Medical, Noble, Burberry, Kansas City Southern
7:00 a.m.: Mortgage applications
8:30 a.m.: Housing starts
8:30 a.m.: Fed Gov. Jerome Stein
9:15 am Industrial production
11:30 a.m.: Atlanta Fed's Lockhart
12:25 p.m.: Fed Chair Janet Yellen at Economic Club of NY, Q&A
1:25 p.m.: Dallas Fed President Richard Fisher
2:00 p.m.: Beige book
Earnings: General Electric, BlackRock, Goldman Sachs, Morgan Stanley, Blackstone, DuPont, Union Pacific, Pepsico, Chipotle, Baker Hughes, Sherwin-Williams, Fifth Third, AutoNation, Sonoco Products, Snap-on Mattel, Cypress Semiconductor, Baxter, Taiwan Semiconductor, Rockwell Collins
8:30 a.m.: Jobless claims
10:00 a.m.: Philadelphia Fed survey
Markets closed for Good Friday
10:00 a.m.: Leading indicators
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.