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Friday's dramatic sell-off capped the worst week in two years for stocks, and investors were looking forward to Monday with trepidation.
The wild ride, which shaved 3.8 percent off the , is the first correction of more than 3 percent since just before the presidential election in 2016. Since the election, the S&P 500 is up about 30 percent, and this week's selling reintroduces volatility that has been unheard of since then.
"How long has it has been since we've had a scary Friday, and a whole scary weekend until we see what Monday is like?" said Jim Paulsen, chief investment strategist at Leuthold Group. "The other thing that got me, leading up to this week, is that good news stopped helping stocks."
Dow futures were down nearly 200 points Sunday evening, and Treasury yields were rising from Friday's elevated levels.
The stock market sell-off was tied to a sell-off in bonds, and bond strategists were reluctant to call a direction for interest rates in the week ahead, after the unusual volatility of the past week.
"The sell-off has been pretty violent," said Michael Schumacher, director of rate strategy at Wells Fargo. "Normally I'd say if you have some 40 basis point move in the 10-year, it's better looking for long-term investors."
The bond market will be put to the test into the Treasurys $66 billion in auctions of 3-, 10-year and 30-year bonds, Tuesday through Thursday. The 10-year was yielding 2.86 percent in the Asian session.
This past week, the Treasury announced higher issuance at those auctions, and that also spooked bonds, which have been anticipating a surge in new debt this year.
Jerome Powell is sworn in as Fed chair Monday, after Janet Yellen left the post over the weekend. There are a number of Fed speakers in the coming week, and they may have comments about inflation but the markets are mostly looking forward to the Fed forecasts after its March meeting and Powell's comments at his first press briefing after that meeting.
Yields, which move opposite price, had also been rising on inflation expectations and the idea that the Fed and other central banks be forced to raise interest rates and tighten policy faster than expected if growth and inflation pick up. January's employment report Friday included the best wage gains since 2009. That sent rates spiking, and the 10-year jumped to 2.85 percent, its highest level since January 2014.
"The market obviously got a little ahead of itself and all it took was the sell-off in bonds to show us that. Meanwhile, earnings are fine," said Bob Doll, chief U.S. equity strategist at Nuveen Asset Management. "Tell me where the 10-year yield is going to end up in this noisy period. If it stops going up, stocks will probably stop going down."
Strategists said the market is adjusting to the idea that the Fed could have to raise interest rates more than the three times it forecast for this year.
Julian Emanuel, chief U.S. equity and derivatives strategist at BTIG, said if the 10-year gets close to 3 percent that could be problematic for stocks. "If yields stop here, this correction is likely going to be one of a combination of price and time correction ... sideways choppy, volatile for a number of weeks but not material downside. But if politics stay in the headlines and rates continue to rise, that's how you get the big move to the downside."
Washington will continue to be a focus as Congress faces a Feb. 8 budget deadline and markets watch for fallout from the House intelligence committee release of a GOP memo on the Russian investigation.
Jay Powell is sworn in as Fed Chair
9:45 a.m. Services PMI
10:00 a.m. ISM nonmanufacturing
2:00 p.m. Senior loan officer survey
8:30 a.m. U.S. trade deficit
10:00 a.m. JOLTs
8:30 a.m. New York Fed President William Dudley
11:15 a.m. Chicago Fed President Charles Evans
3 p.m. Consumer credit
5:30 p.m. San Francisco Fed President John Williams
4:50 a.m. Dallas Fed President Robert Kaplan
8:00 a.m. Philadelphia Fed President Patrick Harker
8:30 a.m. Jobless claims
9:00 a.m. Minneapolis Fed President Neel Kashkari
9:00 p.m. Kansas City Fed President Esther George
10:00 a.m. Wholesale trade