"What the market needs next week and the week after is positive guidance from companies. What are companies telling us? What are their customers telling us?" said Quincy Krosby, chief market strategist at Prudential Financial. "If we could move from a stellar earnings to a more moderate earnings backdrop, the market will accept that but if guidance is weak and companies are lowering revenue growth, that will affect the market."
The S&P 500 surged over 3.3 percent Friday to 2,531, and was up 1.7 percent for the week. The S&P was up more than 7.5 percent from its Dec. 24 low close.
China and the United States will hold vice ministerial level trade talks in Beijing on Monday and Tuesday and are expected to hold another round of meetings the following week.
"China is going to be absolutely the big thing," said Julian Emanuel, chief equities and derivatives strategist at BTIG. China cut reserve requirements Friday to encourage more bank lending, its latest policy move aimed at ending a slowdown.
Economists expect U.S. growth to slow slightly, to the 2-2.5 percent range in the fist half but markets have been reacting to the prospect of an even slower economy. The ISM data for December was particularly discouraging because of a steep drop in new orders.
"The question is are we likely to have warnings? Given the economic data that we've seen, particularly the slowdown in the new orders component, we probably are likely to get warnings and the question is, is it baked into stock prices? We think, for the most part, it is," said Emanuel.
Markets will also remain heavily focused on data after the weak ISM survey was followed by a surprisingly strong December jobs report with 312,000 nonfarm payrolls added. The employment report showed a strong labor market, with wage growth of 0.4 percent and a pickup in participation by more than 400,000 workers.
"What this market needed was a strong data release, an unequivocally strong data release," said Krosby. "It was an injection to positive data in a market that has been worried about an economy that is potentially stalling,"
Krosby said the market needs to build on its gains and the positive sentiment around the strong data. "This has been a market that had all of the signatures of the bear claws death by 1,000 cuts. No data release was seen as positive. Everything was seen as negative. If we could turn that psychology around and build on it, but we are waiting to see if there are sellers who were waiting to get out. We need to see if they're still there."
Data releases in the comign week include Services ISM Monday and international trade data, out Tuesday morning, but the data the markets are waiting for will be Friday's CPI inflation report.
During his appearance Friday, Powell indicated that inflation was not a concern for the Fed and the economy is still in good shape despite concerns. He also said the Fed was paying attention to the market, which is reflecting a weaker outlook than the data suggests.