Washington will also be a focus after a week of failure and dysfunction. The Senate's inability to pass a health-care bill added to concerns that President Donald Donald Trump's agenda has stalled out. A new worry has also been creeping into the markets as traders begin to focus on the fact that the budget debate and debt ceiling are next up when Congress returns in September.
"If you look at the fact that health care didn't pass, that none of the votes passed on it just shows you that the likelihood of both the budget getting approved and the debt ceiling being raised in the fall without a significant struggle is going to be very difficult. You've already started seeing T-bill yields ratchet up and you're seeing the dollar sell off," said Julian Emanuel, U.S. equity and derivatives strategist at UBS. The dollar index was off about 0.6 percent in the past week, and is off 2.4 percent in the month of July.
The July jobs report Friday will be important for all financial markets, as it will be an important signal on the economy as the Federal Reserve gears up to begin paring back its balance sheet in the fall by making fewer bond purchases.
The Fed also reaffirmed after its two-day July meeting that the lack of inflation in the economy is a concern, so wages in the employment report will also be important. So far wage growth has been tepid. Employers are expected to have added 187,000 jobs, down from 222,000 in June, and unemployment is expected to tick down to 4.3 percent.
"We do have a big week of fresh data," said James Paulsen, chief investment strategist at The Leuthold Group. "Particularly with the Fed, and the falling dollar, that wage number could be a big deal if it shows any sign of strength. The dollar, at any point could be the biggest story for the week. If that breaks."
Paulsen said if the dollar index loses more ground, to the 92.50 range, it would break a nearly three-year range and could fall even further. "That would trump everything for awhile if you put oil back into the $50s. and the dollar is in free fall ... I think it would initially be positive for stocks," he said. WTI crude futures ended the week at $49.71, up 8.6 percent in its best weekly gain of the year on a promise by Saudi Arabia to cut production and the weaker dollar.
Besides the jobs number, there are also personal income and spending, ISM manufacturing data and vehicle sales Tuesday.
"The economic data is important because you really have to strike the right balance. The problem is if the data is too strong, you could have a bond market sell-off which we've seen over the last couple of months, and that actually tends to impact technology adversely to a greater extent than the rest of the market. To the extent the market leadership is challenged, that's an issue," said Emanuel. But the report can't be too soft either, especially as the Fed moves to tighten policy.
"If the jobs data is too weak, you could have the dollar under continued pressure, and that could be construed as a negative in front of the budget and debt ceiling debate you have in the fall. In a lot of respects, to maintain this Goldilocks-like atmosphere in stocks, where the VIX is 10 and we're hitting all-time highs, you need the data to materialize in a Goldilocks 'not too hot, not too cold' fashion."
In the past week, stock market indexes hit new highs and the VIX, the CBOE Volatility Index hit a new low. It was up sharply after the Nasdaq sell-off and was trading near 11 on Friday.
"We have nothing to fear but the lack of fear itself," said Emanuel. Some strategists have been pointing to the VIX and the fact that investors are very bullish on stocks as signs of complacency, and could be the quiet before a market selling storm. Most expect a shallow pullback because of the sidelined cash that would pour into the market if prices go down.
Boockvar said the market may be sending a signal in the Nasdaq sell-off. He said the market favorite FANG group is showing signs of splintering with Facebook and Netflix rallying post-earnings but Amazon and Google parent Alphabet selling off.
"If you were to have a setup to a warning, it would look like this. Huge bullish sentiment, you have the lowest bears in [sentiment surveys] since last year. The VIX is at record lows. Valuations at record highs," Boockvar said. He noted that the sell-off in Dow Transports was also a warning, as was the technical reversal in the Nasdaq. "Anyone not paying attention to that is making a mistake ... and it was in the same week the Fed was telling you their balance sheet readjustment is going to start soon."
The Nasdaq swoon may have been a warning shot for a future sell-off, but Emanuel said it was concerning that so much of the market gains are concentrated in so few stocks. Tech dominates Nasdaq but it has become the largestshare of S&P 500 market weight since the tech bubble – at 23 percent. But the four FANG stocks together with Apple, account for 10.6 percent.
"Basically when you look at the concentration of returns amongst a handful of stocks, that's what got people nervous about technology in June, and the fact that for the most part these stocks have rebounded, some of which have set new highs. That problem is still there, you still have the concentration," said Emanuel.
Besides Apple, about a fifth of the S&P 500 companies report earnings in the coming week.
Paulsen said the earnings season has been good, but stocks are being put to the test if they don't deliver in a big way.
"The bar's raised with this earnings season. It seems like it takes better and better numbers to make people feel good. Now the hair is up on the back of your neck about technology because we've had a couple of misses, which puts Apple in a kind of bad place," he said. "Not that the numbers will be bad, but it's going to be hard for it to be that good."
Boockvar said one non-U.S. data release next week actually could have a big impact on the U.S. The euro zone inflation data are released Monday, and with the market's focus on whether the European Central Bank will slow down its easing, it will be important. Boockvar said if it moves German bund yields, that could ripple through to the Treasury market and also affect the dollar, if the euro moves on it.
"If it surprises on the upside for any reason, you could see a round of selling in European bonds which could spill over to the U.S.," he said. Yields, which move opposite prices, could rise as a result.