The outcome of the Iowa caucuses could impact market sentiment, as traders watch big oil earnings and car sales Tuesday.
"It's all about how the market responds to the Iowa caucuses," said Julian Emanuel, equity and derivatives strategist at UBS. "Here's the question — when we get in tomorrow is the political landscape more or less uncertain than it was today? Ideally, we would like to see less uncertainty and think that's a market positive."
Quincy Krosby, market strategist at Prudential Financial, said one reason stocks held little changed Monday was uncertainty ahead of the Iowa caucus results. The market is looking for "by how much" a candidate wins, she said.
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Hillary Clinton and Donald Trump were the front-runners going into the Iowa caucuses. Investors are looking for a narrowing of the dozen-candidate Republican field, and confirmation of whether Trump can muster the votes. In the Democratic Party, they are watching to see if Sen. Bernie Sanders is a significant challenge for Clinton.
Besides politics, traders will be watching earnings and car sales, which are expected to come in at a 17.3 million annualized selling rate in January. Exxon Mobil and BP report ahead of the opening bell.
Stocks could also feel the positive effect of Alphabet's earnings beat after the close Monday. The holding company for Google reported a slight gain in profit, but its revenue jumped 18 percent to $21.3 billion. Its stock rose more than 5 percent in late trading. Alphabet, previously named Google, is one of the FANG stocks. FANG was a top market performer last year and included Facebook, Amazon.com and Netflix.
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"The FANG stocks and the energy stocks, on the other hand, are probably the ones people are scrutinizing most," said Emanuel. "What we are hoping for is an investor reaction to the energy names that report (Tuesday) and the rest of the week, to be unlike the Groundhog Day moves we've been experiencing for the last year and a half in the energy patch. Given the potential for the oil price itself to be forming a bottom, we will be especially vigilant of the energy names to trade well post what once again will be soft earnings announcements."
Emanuel said the options market shows investors are positioned for a high amount of volatility around energy earnings reports.
Besides energy, other companies reporting ahead of the opening bell Tuesday are Pfizer, LVMH, UBS, UPS, Archer Daniels Midland, Royal Caribbean, Sirius XM Radio, Church & Dwight, Dow Chemical, and Michael Kors. Gilead Sciences, Yahoo, Chipotle Mexican, Match Group, Equity Residential and IAC/InterActive report after the market close.
Emanuel said Monday's market action suggests stocks could be in the process of bottoming. The market suffered sharp losses but recovered into the closing bell to finish the day just slightly lower. Oil prices plunged. The was down less than a point at 1,939, and the Dow slipped 17 to 16,449.
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Stocks started February on a softish note, but Emanuel said it was a positive that the huge gains from Friday were not erased. "That would lead us to believe that Friday's rally was a lot more than just a reaction to the surprise Japanese move to negative rates, and the month-end pension rebalancing. By that token, the market had every reason to trade off today, given the fact that crude oil was off 7 percent," he said.
The S&P on Jan. 20 hit a low of 1,812, and traders have been watching that level as a possible bottom. West Texas Intermediate oil futures Monday were down nearly 6 percent to $31.62 per barrel as speculation about an OPEC production deal faded.
The January jobs report looms large at the end of the week, and there are other data in the meantime, like Wednesday's ISM nonmanufacturing data. "We fully expect that the balance of economic reports this week, nonmanufacturing ISM and the employment report in particular, will reinforce the idea that there's not likely to be a recession in 2016," Emanuel said.