Stocks could be entering a longer period of volatility, with concerns about North Korea's nuclear threat accelerating some selling pressure that analysts had been expecting to see anyway.
It's mid August, but the week ahead has a number of important market drivers, including Tuesday's monthly retail sales report and Wednesday's release of minutes from the last Federal Reserve meeting. Wal-Mart and Home Depot, two of the better performers in retail, both report earnings, as do a number of smaller chain stores.
Of course, the unpredictable and at times unnerving war of words between President Donald Trump and North Korea could continue to hang over markets, which acted desensitized to it on Friday after a sharp sell-off Thursday.
The Dow and S&P 500 had their second worst weekly losses of the year, with the S&P 500 down 1.4 percent at 2,441. The Dow fell 1.1 percent to 21,858. The Nasdaq, which had shown early signs of a selloff, ended the week down 1.5 percent at 6,256.
Treasurys benefited from a flight-to-safety trade, with the 10-year yield dipping to 2.18 percent, its lowest level since June. Yields move opposite prices. Gold was also bid up as a safe haven, rising more than 2.5 percent for the week.
"The market's going to continue to react in the short term to any further signs of escalation or de-escalation of the geopolitical risk," said Bank of America Merrill Lynch equity strategist Dan Suzuki. "Every expert and anybody who has looked at the history of these geopolitical events, they are almost always a buying opportunity."
Geopolitical tensions are not the only thing analysts are looking for as a trigger for a selloff in a market that has not had a major pullback in 18 months. The catalysts could be any number of things, but one overriding concern is the expectation that global central banks will tighten up policy in the coming months. That could spook a market that has risen for eight years in a world of super low interest rates.
"We could have a number of periods of pullbacks," said Kate Moore, BlackRock chief equity strategist. Moore said it's most likely any sell-offs in the late summer and fall would be fairly shallow and probably short-lived. She said the market is showing greater dispersion and has become better for stock pickers.
"In general, I think equity returns in the second half of the year will be solid," she said. But Moore said she's watching for central bank risk and expects in the next couple of weeks that there could be signs that the European Central Bank will step back further from its asset purchase program.
ECB President Mario Draghi speaks at the Fed's Jackson Hole symposium taking place starting Aug. 24. Moore said Draghi may signal that changes are coming, which the central bank could then elaborate on at its September meeting.
The Fed symposium will also be an opportunity for Fed officials to clarify their own plans to shrink their balance sheet, as well as discuss their views on inflation and interest rate hikes. The lack of inflation, in a fifth disappointing monthly CPI report Friday, has made the market even more skeptical the Fed will be able to raise interest rates a third time this year. The Fed, however, is expected to make an announcement after its September meeting that it will soon begin to wind down bond purchases and reduce its balance sheet.
"What's more a concern to us are things that relate to profits and the economic cycle. That's where we're still focused," Suzuki said. BofA has been expecting a correction, and sees the S&P 500 at 2,450 at year-end, slightly higher than current levels. "The thing that probably matters most is what's going to happen with market sentiment. We're at the point of the cycle where fundamentals and valuations take a back seat to sentiment and technicals."
Both Moore and Suzuki pointed to a highly unusual phenomenon this earnings period. Companies that beat earnings were not rewarded much, and those that missed were clobbered with outsized losses. Normally, the stocks of companies that beat rise a few percent. Those that miss decline a few percent.
Suzuki said that could be indicative of a late cycle bull market. "The last time you saw this happen was during the tech bubble in 2000," he said.