Stocks celebrated the bull market's seventh birthday with their first four-week win streak since November. But markets still anxiously await U.S. data, a Fed meeting and clarity on China.
The "debate we're going to have: Is this a bull market or is it just a rally in a bear market?" said John Canally, investment strategist and economist at LPL Financial. "Next week is going to go a long way to determining it."
Investors will be parsing the Federal Reserve's statement and Fed Chair Janet Yellen's press conference scheduled for Wednesday for indications on the Fed's view of economic growth and the pace of tightening.
Retail sales and inflation data due ahead of the Fed meeting could support the improving economic picture while increasing expectations of a rate hike sooner rather than later.
"Next week is all about the Fed, and there may be some nervousness around that that it might be a bit more hawkish," said Lee Ferridge, head of macro strategy, North America, at State Street Global Markets.
While markets are only pricing in one more hike this year, "the risk is the Fed is slightly more hawkish than that one hike (and) only take one out" from their December projection for four hikes, he said.
After the European Central Bank's stimulus announcements in the past week, the Bank of Japan is set to meet Monday and Tuesday. However, no major decisions are expected since the Japanese central bank surprised markets with a move to negative rates just over a month ago.
"There really hasn't been enough time to see the full impact of it," said Sharon Stark, fixed-income strategist at D.A. Davidson.
The Bank of England is also scheduled to release its monetary policy announcement and minutes on Thursday.
Currency reaction will be key to watch, after the euro and yen both unexpectedly rallied against the U.S. dollar following the ECB's and BOJ's latest stimulative measures.
The resulting downward pressure on the U.S. dollar index gives the Fed more room to raise rates.
"The Fed has become much more comfortable with this idea that the U.S. dollar is not a one-way train higher," said Gene Tannuzzo, senior portfolio manager of Columbia Threadneedle's Strategic Income Fund.
The U.S. dollar index rallied more than 20 percent in 12 months as expectations of a rate hike rose following Janet Yellen's assumption of the Fed chair in early 2014. Since a peak last March, the dollar has held in a range, and currently trades about 4 percent below that high.
U.S. dollar strength has weighed on corporate earnings. Lindsey Bell, senior analyst at S&P Global Market Intelligence, estimates the dollar's rise reduced top line growth by about 6 to 8 percentage points, for a 7 percent reduction in earnings for the S&P 500.
With the majority of fourth-quarter results in, earnings per share declined 4.3 percent for their deepest growth decline in the S&P 500 since 2009, according to S&P Global Market Intelligence.
Lack of earnings growth and concerns about the effectiveness of monetary policy amid signs of a slowing global economy rattled stocks at the start of this year. All three major averages fell into correction territory, or more than 10 percent below their 52-week intraday highs.
Friday's rally, following higher oil prices and the ECB's Thursday announcement of a greater-than-expected stimulus package, took the major averages more than 1 percent higher to post their first four-week rally since November.
The Dow Jones industrial average gained 218 points to 17,213, above its 200-day moving average. The S&P 500 also closed above its 200-day moving average with a 1.6 percent rally to 2,022.
Analysts are divided over whether or not the run will continue, but they generally expect more volatility, especially with options expiration next Friday and uncertainties around the price of oil.
"To me we just saw a bear market rally over the past month," said Peter Boockvar, chief market analyst at The Lindsey Group. "Very likely the Fed and Bank of Japan next week caps the end of that bear market rally. Central banks are really the most important thing in terms of their influence."
"Market multiples will go down as people lose faith in central bank influence," he said. "People should see central banks are out of bullets in terms of their influence. You put that on top of earnings growth that is slowing already."
Recent improvement in economic data has supported gains in stocks. The scheduled releases for next week include retail sales on Tuesday, housing starts and industrial production on Wednesday, JOLTS on Thursday and consumer sentiment on Friday.
We "can't forget we've had a really, really positive rally since that retail sales number hit a few Fridays ago," said Mike Baele, managing director at U.S. Bank Private Client Reserve.
"I think the key thing to watch is really the consumer. So the consumer measures are going to be most important," he said.
China is also scheduled to release February retail sales over the weekend. Although likely affected by the Lunar New Year, the figure will be watched closely as the country increasingly depends on the growing middle class to support a difficult transition to a services-based economy.
The People's Bank of China Gov. Zhou Xiaochuan is due to give a rare press conference Friday evening. Premier Li Keqiang is also scheduled to wrap up the ongoing National People's Congress with a press conference on Wednesday, local time.
Anything either leader says that deviates from a message of maintaining a stable currency and supporting economic growth "could get a risk-off sentiment," Canally said.
China's fixed-asset investment, industrial production and electricity consumption data are also due in the next few days.
On tap next week:
Bank of Japan meeting begins
Bank of Japan meeting concludes, FOMC meeting begins
Earnings: FactSet, HD Supply Holdings, DSW, Oracle
8:30 a.m.: PPI
8:30 a.m.: Retail sales
8:30 a.m.: Empire State manufacturing survey
10 a.m.: Business inventories
10 a.m.: Housing market index
4 p.m.: Treasury international capital
Earnings: Cheetah Mobile, RedEx, Ctrip.com Intl., Guess, Herman Miller, Jabil Circuit
7 a.m.: Mortgage applications
8:30 a.m.: CPI
8:30 a.m.: Housing starts
9:15 a.m.: Industrial production
10:30 a.m.: Oil inventories
1 p.m.: European Central Bank President Mario Draghi gives welcoming remarks at ECB Contemporary Art From Poland Exhibition
2 p.m.: FOMC meeting announcement
2:30 p.m.: Fed Chair Janet Yellen press conference
Bank of England monetary policy announcement and minutes
Earnings: Tencent, Michaels Cos., Intl. Game Technology, Lands' End
8:30 a.m.: Jobless claims
8:30 a.m.: Philly Fed business outlook survey
8:30 a.m.: Current account
10 a.m.: JOLTS
10 a.m.: Leading indicators
10:30 a.m.: Natural gas inventories
4:30 p.m.: Fed balance sheet/Money supply
9 a.m.: New York Fed President William Dudley speaks
10 a.m.: Consumer sentiment
10 a.m.: Atlanta Fed business inflation expectations
11 a.m.: Boston Fed President Eric Rosengren speaks
1 p.m.: Oil rig count
1:30 p.m.: St. Louis Fed President James Bullard
*All times Eastern. Planner subject to change.