Stocks should continue to dance around all-time highs, as traders watch for catalysts in economic data and bond yields.
The month of May winds down in the week ahead, and that could keep volatility elevated in the bond market, as could several bond auctions. There are a few important data releases, including durable goods data Tuesday; home prices and home sales data Tuesday and the latest revision to first quarter GDP Friday. Consumer confidence is released Tuesday.
"I think we're going to be real choppy and range bound, driven by the bond market," said John Canally, economist and strategist at LPL Financial. "The direction of the bond market, and maybe the oil market, is going to drive stocks next week."
In the past week, the stock market was mixed with the Dow negative and the other indices higher. The Dow transports, diverging from the Dow itself, declined more than 2 percent for the week, while the Dow was off 0.22 percent for the week, to 18,232.02. The finished up 0.16 percent for the week, at 2,126.06, while the Nasdaq outperformed, gaining to 5,089.36, just shy of its closing record of 5,092.09.
Higher oil prices has been one factor affecting transports, and oil in the past week rose slightly. West Texas Intermediate crude futures settled at $59.72 per barrel Friday.
Read More Dow divergence spooks traders
Bond yields, lifted by speculation about rate hikes, were also pushed higher as a large amount of corporate debt issuance came to market. The 10-year was yielding 2.21 percent late Friday, up from 2.14 percent the week earlier.
Economists expect the market to watch all data related to housing, considered one part of the economy showing signs of rebound, after a 20 percent jump in April housing starts.
"We should at least see improvement over March new home sales which were pretty anemic," said Ward McCarthy, chief financial economist at Jefferies. "There are a lot of ducks in a row that suggest housing should do better in Q2 and Q3, and if we don't see it, you have to start waving caution flags."
The S&P 500 broke to a new high this past week but stocks have been caught in a fairly narrow range, as markets look to each economic report for its potential influence on Fed policy.
Stocks have defied expectations of a selloff in May, and the S&P 500 is in line for a more than 2 percent gain. While some strategists look for a correction this summer, others say the market could continue to drift higher.
Bob Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management, said he doesn't expect stocks to really break out until earnings improve.
"I think for a sustainable breakout to the upside, we're going to need better visibility for the second half. I think if we have a shot at that, it comes from the consumer. The biggest head scratcher is that jobs have improved, initial claims are getting better. We're starting to see some compensation increase, and we've got this dividend from energy prices falling. That should be a recipe for the consumer spending a bunch more money but instead the savings are going up," he said, noting investors may need more time.
"Until we get that visibility, I think we're going to fool around with maybe an upward bias," he said. "Every time, you're starting to feel better, something comes along and you go down 50 points. A big surprise would be if we break up or break down, but I think we fool around in the same range, or go modestly higher."
Some strategists, expecting a selloff, say it's the potential for Fed rate hikes that could make stocks nervous. The Treasury market is also nudging rates higher, and that could be problematic for stocks if the move is too swift.
"If the Fed does go 25 or 50 basis points, what's going to change for the equity market? History shows, leading up to the first rate hike, stocks do well, and in the first 12 months after the first rate hike, they do OK. We've had a wonderful bull market because earnings and P/Es have gone up. My guess is P/Es aren't going up so the pace of gains is going to slow," he said.
But Doll does expect the S&P 500 to reach 2,200 by year end. His preferred sectors are tech and health care, and he does not like energy or materials.
He said the current market scenario, where stocks barely move but drift higher, will not excite Wall Street. "In the scenario I described, both the bulls and bears are frustrated," Doll said.
Memorial Day holiday
9:10 p.m.: Cleveland Fed President Loretta Mester speaks in Iceland.
8:30 a.m.: Durable goods
9 a.m.: S&P/Case-Shiller
9 a.m.: FHFA home prices
9:45 a.m.: Services PMI
10 a.m.: New home sales
10 a.m.: Consumer confidence
1 p.m.: $26 billion 2-year note auction
7:10 p.m.: Richmond Fed President Jeffrey Lacker
1 p.m.: $35 billion 5-year note auction
2:20 a.m.: San Francisco Fed President John Williams in Singapore
8:30 a.m.: Initial claims
10 a.m.: Pending home sales
1 p.m.: $29 billion 7-year note auction
2:45 p.m.: Minnesota Fed President Narayana Kocherlakota
8:30 a.m.: Real GDP Q1 (second)
9:45 a.m.: Chicago PMI
10 a.m.: Consumer sentiment