The economic data calendar is busy with durable goods for August on Wednesday, personal income and spending data Friday, and September consumer confidence and sentiment Wednesday and Friday. There is also a flash Services PMI Tuesday, and international trade and a final revision to second-quarter GDP Thursday.
The Fed set the tone for markets in the past week, with its new forecast for just one rate hike this year, most likely in December. But it also smoothed the path for stocks into next year, by reducing its outlook to just two rate hikes from four in its last forecast. Stocks rallied for two days after the Fed announcement, but gave back some gains Friday.
"The Fed statement just reinforces our view that this is going to be a very long business cycle," said U.S. Trust macro strategist Jonathan Kozy. Kozy said the Fed's lower-for-longer interest rate forecast and view that the economy is growing, but slowly, is now more in line with the market's view. "I think investors should consider we are in the sixth or seventh inning of a nine inning game, so there's still room to run in terms of the business cycle."
The stock market has not responded much to the election so far, but certain sectors and asset classes, such as biotech and the Mexican peso, have. The broader market could see a reason to join in after Monday night's debate, but the reaction could be more in a pickup in volatility as the election gets closer.
"From a market standpoint, typically economic policy uncertainty is elevated as you head into the election and then it fades," said Kozy.
Wall Street so far has been somewhat comfortable assuming Democrat Hillary Clinton will win, though her policies are not necessarily embraced by the market. She continues to lead in polls, but Republican Donald Trump has closed the gap.
"I still feel the markets have not priced in a potential Trump victory. I think most people in the market think she's going to win, and if you look at the electoral college map, you can still make that case even though it's tightened. I think the market would have to focus on what it means if he were to win," said Greg Valliere, chief global strategist at Horizon Investments. "First and foremost, the market has to care about uncertainty. He changes his positions with regularity."
Dan Clifton, head of policy research at Strategas, said the broad market could sell off if Clinton does not "win" the debate. A win for Trump could stoke a risk-off tone, said Clifton. But he added Wall Street might ultimately like Trump's economic and tax plans, even if his trade position has prompted fears of protectionism that would harm the market.
"Hillary needs this debate like [President Ronald] Reagan did to show her health is strong, and that she is a much better commander-in-chief than Donald Trump. If she has a health scare, a coughing fit or something that doesn't look well … that could end her candidacy. You see the stakes she's walking on," said Clifton.
Trump has other issues. "Trump's big problem is people aren't ready to hand him the keys. He's got to somehow prove to people that they can trust him to be in charge of the government for the next four years. He's never had a one-on-one debate. What he's got to do is make clear that whatever Hillary is doing is not working," said Clifton.
For all the focus on the debate, traders in VIX options are not rushing to hedge around it as an event that would spark a big move in the CBOE's Volatility Index. The VIX is used as a metric to measure the stock market's anxiety level, and it's based on the implied volatility of puts and calls in the S&P 500.
Daniel Deming, money manager with KKM Financial, said he does not see any unusually high volume of hedging in VIX options around next week's debate. However, he said traders are actively taking positions for October. "You've seen a tremendous amount of activity in out-of-the money calls in the VIX for the month of October. There's significant demand for what could be perceived as disaster insurance should the market show any major sign of weakness," he said.
Other political drama in the coming week could come from Congress, where budget negotiations are underway ahead of the Sept. 30 deadline. If they fail to reach a deal, Congress could again cause a shut down of the federal government.
The other wild card for markets is the meeting of OPEC members and non-OPEC producers at an energy conference in Algeria from Monday through Wednesday.
Headlines have already been rocking the oil market. On Friday, oil surged after Saudi Arabia reportedly agreed to trim its production if Iran caps its own output, according to Reuters. But then oil tanked after another report quoting an unnamed Saudi official who cautioned not to expect a deal and that the meeting would be more a chance to consult than reach a formal agreement.
"Iran will never agree to that, and the Russians are skeptical. It's falling apart right before our eyes," said John Kilduff of Again Capital. But more headlines are expected as ministers meet on the sidelines of the energy conference. "I think the headline risk in this market is going to be extremely elevated."
Some analysts, however, believe odds of a deal are higher than at the last meeting of OPEC and other producers in April. RBC's Helima Croft said the fact that Iran and Saudi Arabia have been talking ahead of the meeting is a sign there is a bigger effort underway to get some type of deal.
"If they fail, it won't be for lack of trying," she said. "All these things signal that they're serious this time. For the Iranians and Saudis, that have no diplomatic relations, this shows everyone wants to get this done."
The economic data is also key in the week ahead, especially after September flash PMI data showed more weakness in U.S. manufacturing. The ISM manufacturing survey showed a shocking contraction in activity and now the question is whether there was a summer soft patch or a more prolonged period of sluggishness. Important data for August has so far disappointed, including jobs, retail sales, industrial production and ISM manufacturing and services data.
"I think personal income and spending data on Friday is probably the most important release. I think the tone for the August data was soft and we'll continue to see more soft August data release, but I don't think it's a real concerning sign for the economy. I think it was kind of an off-month. The weather was very bad. It was excessively hot in most states and there were all those floods in the south," said Tom Simons, money market economist at Jefferies.
Fed speakers will also be watched carefully in the week ahead, after the Fed reached its agreement to hold rates steady with a surprising number of dissents from three Fed presidents. The markets will be watching to see that Fed speakers support the expectations for a December rate hike. Yellen's testimony will also be monitored closely for any new insight on policy.
"There's a lot to process next week. We have a lot of Fed speakers too. Usually the week after the FOMC meeting, we're kind of left thinking they're going to explain themselves. But there really isn't much to explain this time. I was pretty clear they want to hike once this year and two times in each of the next two years," said Simons. "I feel like it's going to be a lot of headlines nobody cares about."
Ron Sanchez, CIO of Fiduciary Trust, said if the conditions are right, the Fed clearly set itself up to hike in December. He said there should be a rate increase "if 12 weeks from now, it looks like today, with the 2 percent economy and we don't hear from China or other parts of the world" or see a worsening of financial conditions.
"That was problematic in the first half of the year. You had weak emerging market data and a hard landing in China, which would have ramifications around the world," he said. Now the dollar is steadier and oil has stayed between $40 and $50 per barrel.
"If the risks are what they consider are balanced — geopolitical risks like Brexit and China — then I think you have the conditions that would assuredly guarantee a rate hike move in December," Sanchez said.
In the past week, stocks had one of the best weeks of the summer. The S&P 500 rose 1.2 percent in the past week to 2,164, while the Nasdaq gained about the same to close at 5,329.
Oil prices were up more than 3.5 percent for the week, even with Friday's steep nearly 4 percent decline. West Texas Intermediate futures were at about $44.60 per barrel in late trading.