Technology, industrial, health-care and consumer companies all report earnings in the week ahead and may provide some clues on the extent of the economy's soft patch.
So far the earnings season has been lackluster, and some high-profile warnings have already given investors pause. Wal-Mart said its sales would be weaker than expected next year, and Yum Brands said its sales in China are too difficult to predict because of volatility there.
"The earnings are not good. Companies are giving cautionary guidance," said David Bianco, chief U.S. equity strategist at Deutsche Bank.
Those corporate warnings follow on a batch of weaker U.S. economic reports that have dragged down third-quarter growth targets to an average 1.6 percent, according to a CNBC/Moody's Analytics survey. Some forecasts are as low as 1 percent, after second-quarter GDP grew at a 3.9 percent pace.
When the Fed held off hiking interest rates in September, it warned that it was watching international developments because of the potential impact on U.S. growth. There will be little new information on the U.S. economy this week. The economic calendar is light in the coming week and dominated by housing reports.
But there will be heavy focus on a release of Chinese economic data Monday, and economists are anxious to see if it is stabilizing or getting weaker. China releases third-quarter GDP, industrial output and retail sales. GDP is expected to slip below 7 percent for the first time since 2009. China does not have a big direct impact on the U.S. economy, but it does have an indirect impact because of its significant influence on other economies that have trade relationships with the U.S.
Commodities and currency markets could be especially sensitive to the Chinese data early in the week.
"If you look at the various drivers here, it's pretty clear that China's economy is changing, and that means we're looking at probably a weaker environment for metals and mining companies. On the flip side, we think supply in the energy space might come down because of the capex cuts in recent quarters. We see probably a better picture for energy than some of the metals," said Francisco Blanch, Bank of American Merrill Lynch head of global commodities and derivatives research.
Blanch said confusion over the Fed has helped some commodities as the dollar weakened.
"We think overall the commodity markets are in better shape, but considering the negative backdrop of weaker China and stronger dollar, this has changed with the Fed not hiking. Some commodities like gold, have started to move up. How much gold can move up depends on the outlook for interest rates. The market is saying June, and that's giving gold some room to move higher," said Blanch.
"There's a lot of talk around about QE4 in the market," said Blanch, adding BofA expects a December hike. "I think just the fact that the Fed's message is confusing and six months ago they seemed hell bent on hiking rates and now it's unclear on what they're thinking, that has created some confusion for gold." QE4 is used in the market to describe a resumption of Fed asset purchases. The Fed ended the last of its quantitative easing programs, on the expectations it would move ahead to begin normalizing interest rates.
Investors in the week ahead will also focus on how the markets trade in response to the data and on expectations for a Fed rate hike. Stocks have rallied since the Fed held off raising rates, and analyst say the market has begun to respond positively to somewhat weaker economic data because it could delay Fed tightening.
Jim Caron, fixed-income portfolio manager at Morgan Stanley Investment Management, said he sees a 50/50 chance of a Fed rate hike in December, while the market is pricing in just a 1-in-3 chance. "I think we have to live through a period right now of softish data that's not going to necessarily make it obvious the Fed has to hike."
Caron said the markets need to see whether fourth-quarter growth is stronger before investors believe the Fed could hike rates sooner than next year. The data will have to improve, but financial conditions will have to look strong enough for a Fed hike, as well.
"I think the markets are going to focus on what's happening to prices — equities prices, credit spreads … oil prices, things like that. I think that's really what the criteria becomes and what we start to look at. We're going to start to be led by prices," he said.
Stocks closed out the past week with a third week of gains. The S&P 500 was up 0.9 percent to 2033, and the Dow was up 0.8 percent at 17,215. Treasury yields were lower on the week, with the 10-year yield at 2.03 percent from nearly 2.1 percent, the week earlier. The dollar index was off slightly for the week, while commodities were mixed. Gold was up 1.7 percent for the week but West Texas Intermediate crude futures were down nearly 5 percent and copper futures were down about a half percent.
More than a fifth of the S&P 500 report earnings in the coming week, including tech heavies, IBM, Google's parent Alphabet, and Microsoft. Consumer brands Coca-Cola and Procter and Gamble also report, as do industrials, such as Boeing, GM and Caterpillar. U.S. data include homebuilder sentiment Monday, housing starts Tuesday and existing home sales Thursday.
"The profits are still going to be very weak this quarter and next quarter," said Bianco. "Exports are still contracting. China imports are contracting. West Coast U.S. exports are contracting. Everything is still very challenging in the industrial space."
The majority of companies have been beating Wall Street earnings estimates, but the S&P 500 companies are expected to see an earnings decline of nearly 4 percent and just over half of the companies reporting so far have been missing revenue forecasts.
Some technology companies could be challenged, said Bianco. "There are cautionary things coming out of semiconductors, and the business spending side of tech is still very weak. I think earnings season will have continued weakness in sales on the enterprise spending side… . I think the consumer side of tech spending … that stuff should be pretty good," he said.
Bianco said the economy, however, has been concerning since the Fed has been confused markets. "There's so much confusion about whether the data will start improving or continue to deteriorate, and those that were expecting a further deterioration are beginning to think the Fed has to do something (more stimulus)," he said.
There are a half-dozen Fed appearances in the week ahead, before Fed officials go into a quiet period before their Oct. 28 meeting.
"There's really nothing they can say that can help at this stage. Everything at this stage is 'Just show us what you do.' You want to show some courage? Just hike in December. Nobody expects that," said Bianco. "There's just too much confusion between what they're saying and what they're doing. On the one hand they're trying to be communicative. But we're really just more confused and doubting what they're saying."
Fed officials this past week added to the already confused state of the markets, when two Fed governors said they didn't think the Fed should hike rates this year, while Fed Chair Janet Yellen has said she would like to hike rates if the economy is strong enough.
10 a.m.: NAHB survey
10 a.m.: Fed Gov. Lael Brainard on regulatory burden
Noon: Richmond Fed President Jeffrey Lacker
Earnings: Travelers, United Technologies, Bank of NY Mellon, Lockheed Martin, Yahoo, VMWare, iRobot, Cree, Chipotle Mexican Grill, Chubb, Discover Financial, Tupperware, Pinnacle Financial, Brinker International, Canadian Pacific Railway, Omnicom, Harley-Davidson
8:30 a.m.: Housing starts
9 a.m.: New York Fed President William Dudley at market conference
9 a.m.: Fed Gov. Jerome Powell at market conference
11 a.m.: Fed Chair Janet Yellen makes welcoming remarks at ceremony
Earnings: Boeing, Coca-Cola, American Express, eBay, Abbott Labs, Biogen, Texas Instruments, Kimberly-Clark, Las Vegas Sands, General Motors, Credit Suisse, Owens Corning, St. Jude Medical, SanDisk, Norsk Hydro, Northern Trust, Angie's List, Manpower Group, SallieMae, Polaris, Morningstar, Raymond James
1:30 p.m.: Fed's Powell on panel on liquidity
Earnings: 3M, Caterpillar, McDonald's, Amazon.com, Alphabet (Google), Microsoft, Daimler, Dow Chemical, Danaher, AT&T, Raytheon, Eli Lilly, Dr Pepper Snapple, Freeport-McMoran, Nasdaq OMX, PulteGroup, Sirius XM Radio, Under Armour, Southwest Air, Juniper Networks, Pandora, Union Pacific, Alaska Air, Dunkin Brands, Capital One, Stryker
8:30 a.m.: Initial claims
9 a.m.: FHFA home prices
9:45 a.m.: Manufacturing PMI
10 a.m.: Existing home sales