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Stocks will be put to the test in week ahead

With earnings season winding down, markets will turn their focus to data on the consumer and Fed speak in the week ahead.

Stocks closed out the past week with losses, and look set for another week of choppiness, as oil moves closer to its 2015 lows and the commodities crush shows no signs of abating. The Fed remains a key obsession with traders poised to react to each piece of incoming economic news for what it may mean to the Fed's upcoming interest rate decision.

Markets shifted more heavily to price in a September rate hike by the Fed after Friday's July jobs report showed solid growth of 215,000 payrolls and a steady unemployment rate of 5.3 percent. Topping the upcoming data calendar is Thursday's July retail sales.

"At this stage, it's getting to the point where it's hard to imagine the Fed, in my reading, not going if the data continues at current levels," said Bank of America Merrill Lynch senior economist Michael Hanson. Economists expect retail sales to gain 0.5 percent after June's decline of 0.3 percent. There is also productivity and costs Tuesday, JOLTs job opening and turnover data Wednesday, and PPI inflation data, industrial production and consumer sentiment Friday.

But there are also speeches by Atlanta Fed President Dennis Lockhart on Monday and New York Fed President William Dudley. In the past week, Lockhart sent ripples through the markets when he said that in his view he saw no reason to hold off on a September rate hike. Dudley, part of the core of the Fed closest to Fed Chair Janet Yellen, speaks Wednesday in Rochester, New York, on work force development, but he is also taking questions.

"I think (stocks) will listen to the Fed speak after the payrolls data," said Art Cashin, director of floor operations at UBS. Cashin said the stock market also seems to be in a "testing area," and it could be choppy as it sorts through the steep drop in oil. The S&P energy sector was down 3.5 percent for the week. West Texas Intermediate futures closed out the week at $43.87 per barrel, a decline of 6.9 percent and close to its March low of $42.03.

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The S&P 500 finished the past week lower at 2077, off 1.2 percent, just above its 200-day moving average. The Dow was at 17,373, off 1.9 percent, and the Nasdaq was down 1.7 percent at 5,043

Paul LaRosa, chief market technician, agrees with Cashin that the S&P is testing support at 2,063. LaRosa said that if it breaks there, the next stop is 2,039.

"It probably goes there, bounces and you're in that same choppy sideways market," he said. "It seems every time we get to resistance, we lose steam and lose momentum, and every time we get to support, we bounce. At some point, that's going to change, and that's what we have to keep an eye on. We're watching these levels. We're treating it cautiously."

Earnings are expected from Cisco, News Corp., Kraft Heinz and Alibaba, but the big rush of earnings news has slowed.

"Here's really the bottom line. Companies killed the expectations. We're beating by 5.3 percent for earnings season. If you look at what's normal over the very long run, it's like 3 percent," said Jonathon Golub, chief U.S. market strategist at RBC. "Normally earnings estimates fall into the earnings seasons. This time they went up."

Golub said earnings would have been far better if not for the steep decline in energy profits. Upstream companies' profits were down 74 percent, as WTI crude fell more than 40 percent year over year.

"Excluding energy, you're looking at growth rates in the low single digits. Even the areas where people said were horrible, like media," he said. Golub said while earnings are growing, revenues continue to struggle.

"The real story with earnings season is investors are not appreciating how strong it is. There's another sub-story. Their revenues literally are bad. They are just really anemic. The underlying trend is low single digits. What companies are doing, they're managing earnings really, really well and they're delivering," he said. Golub said he expects a couple of years' additional earnings upside due to cost management and buybacks, and that should help stock market gains.

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Golub said the market is less likely to respond to earnings in the coming week, as most companies have now reported. "The market becomes less sensitive to the last 20 percent because it's going to look similar to companies that already reported," he said. "Then you start turning to the economic data. The reality is this is August and the response to everything is going to be a lot more muted, unless there's some really big headline out of China."

Golub said it's looking more like the Fed will raise rates in September. After Friday's July jobs report, futures markets immediately reflected a better-than-50 percent chance for September, from a roughly 47 percent chance. Markets had been pricing in December as most likely and each piece of data or Fed comment was able to shift the view slightly in the past week.

"I think from an investor's point of view, the Fed moving is going to be a good thing. We have zero interest rates. If the Fed is leaving it at zero, they're basically telling you they don't even think we can get to 25 basis points without upsetting the market and the economy. A move to 25 basis points is not someone taking the punch bowl away from the party. It's more like: 'We think you can do this on your own, son. We don't have to co-sign your lease anymore,' " Golub said.

Hanson said consumer-related data will be important in the coming week, and the Fed will be watching all the data. "You've got five more weeks of data, and there's plenty of things that could happen on the geopolitical front. Greece has to come to some agreement with their reconstituted troika. There's still risk out there from other sources, like the Middle East and China. The fiscal issue in the U.S. is going to come back on the fire," he said. "There's a lot of things that contribute to uncertainty, and it's not unlike two years ago when the Fed was considering tapering QE3."

What to watch

Monday

Earnings: Kraft Heinz, Dean Foods, Sysco, International Flavors and Fragrances, Ambac Financial, Shake Shack, Rackspace, Pershing Square Holdings

12:25 p.m.: Atlanta Fed President Dennis Lockhart

Tuesday

Earnings: Cree, Computer Sciences, Symantec, Towers Watson, Red Robin Gourmet Burgers, Cyber Ark Software, JA Solar, Silver Wheaton

7:30 a.m.: NFIB small business survey

8:30 a.m.: Productivity and costs

10 a.m.: Wholesale trade

1 p.m.: $24 billion 3-year auction

Wednesday

Earnings: Cisco, Macy's, News Corp., Alibaba, NetEase, Markit, Wayfair

8:30 a.m.: New York Fed President William Dudley

10 a.m.: JOLTs

1 p.m.: $24 billion 10-year auction

2 p.m.: Federal budget

Thursday

Earnings: Nestle, Kohl's, Nordstrom, Applied Materials, Flowers Foods, El Pollo Loco, King Digital, Party City

8:30 a.m.: Initial claims, retail sales, import prices

10 a.m.: Business inventories

1 p.m.: $16 billion 30-year auction

Friday

8:30 a.m.: PPI

9:15 a.m.: Industrial production

10 a.m.: Consumer sentiment