The Fed calmed the markets in late January when it said it could stop raising interest rates, but investors are watching the release of its meeting minutes for any sign the Fed could veer off its easy path.
"It's hard to imagine the Fed sounding as dovish in the minutes, as [Fed Chair Jerome] Powell sounded in the briefing . We do think the minutes will be bearish. As far as the general tenor, it's hard to see it more dovish than it was on Jan. 30," said Michael Schumacher, director strategy at Wells Fargo.
The Fed, at that meeting, held rates steady and emphasized it could pause in its rate hiking cycle. In what felt like an about face from its December meeting, Powell also emphasized that the Fed would be flexible with its balance sheet. The Fed releases the minutes of its meeting Wednesday afternoon.
Positive comments on trade talks between U.S. and Chinese officials, and a commitment to continue talks in the coming week helped boost stocks Friday and could continue to support the market in the week ahead. Investors were also watching for more information on a Commerce Department report, which could be viewed as a market negative if it recommended tariffs on European automobiles. The president has 90 days from this weekend to act on the report.
Stocks were higher in the past week, even with Thursday's sell off on stunningly weak December retail sales data. The S&P 500 was up 2.5 percent to 2,775, and the Dow was at 25,883, up 3 percent for the week.
After December retail sales slumped 1.7 percent, Walmart earnings on Tuesday will be even more important. The retail sales data was contrary to other reports from retailers and others that showed solid holiday sales, so Walmart's comments about what it is seeing now as well as during the end of the fourth quarter will be important.
"We're going to watch them very closely, and that's because of the retail sales number. The government shutdown, plus the market going down, everyone talking about a recession coming. Did people cut back spending a little bit? Was it real?" said Vinay Pande, head of trading strategies at UBS Global Wealth Management.
Walmart's comparable store sales in the fourth quarter were expected to be up about 3 percent, and its earnings per share are expected to be flat at $1.33, according to FactSet.
Economists cut their expectations for fourth quarter growth to under 2.5 percent after the retail sales number, which was viewed as suspect by some. Goldman Sachs economists called the report an outlier, and said that as much of 1 percentage point of the drop is unexplained.
"Some special factors likely contributed to the fall in core retail sales, including an early Thanksgiving, the December stock-market sell-off, and the start of the government shutdown," it said.
So the coming week's data will also be important, including weekly jobless claims Thursday, which were higher for a third week this past week. The concern is that rising claims could be an early warning sign of a slowdown in the labor market.
"Unemployment claims are rising, at the same time employment growth and income growth are not suggesting this is the case," said Pande.
Data on existing home sales and unemployment claims are released Thursday.
Pande said the market broke out in the past week from a sideways trade it fell into earlier in the month. "Until last week, we just went back to the status quo of November," he said, adding the sell off in December was way overdone. The market has been at an impasse between the lift from value, and the drag from what he called the idiosyncratic risks, like trade, the shutdown threat and other geopolitical risk.
"I think the balance shifted a bit. The bad news on the idiosyncratic front is being overwhelmed by the less bad," Pande said.
Pande said there's a risk that investors will read the Fed's minutes in the coming week a little more hawkish than it intends.
There could be discussion in the minutes about the balance sheet unwind, which some traders fear has been making markets less liquid.
At the Jan. 30 meeting and before, Powell had backtracked on a comment he made after the December meeting that the unwind was on "autopilot."
"It's not a gigantic concession to say I'm flexible. This QT [quantitative tightening] was going to end at any rate at the end of the year," said Pande, adding "we could misinterpret the minutes."
Schumacher said the bond market will be looking for details on which securities the Fed might be rolling off of its balance sheet and which it will be replacing with new purchases, as their holdings mature.
"We think potentially the biggest move in the bond market as far as the minutes go is the composition of the balance sheet. It's not so much the equilibrium number, or when the Fed gets there...There's been talk that the Fed should shorten the duration of its Treasurys. That should mean a steeper curve and higher long term yields," Schumacher said. If the Fed does signal it wants to hold shorter-duration securities, yields on the 10-year and 30-year bond could rise.