Stimulus to help the economy and vaccines to stop the virus are expected to the be the main focus in markets in the week ahead.
Efforts to move along a fiscal package in Congress picked up momentum in the past week with Congressional leaders sounding conciliatory, and a bi-partisan group of senators pushing their own $900 billion proposal.
"It probably boils down to how much [Senate Majority Leader] Mitch McConnell is willing to deal, and I don't know what the answer is to that," said Mike Schumacher, head of rate strategy at Wells Fargo. "If it's going to happen, next week is the week. The government runs out of money on Friday. Congress has to come up with a funding scheme."
Strategists have said the two events could be tied, but Congress could also push through a spending resolution without including stimulus. Some programs will expire at the end of the month, if Congress does not provide funding, including unemployment benefits for millions of Americans.
The on again, off again stimulus talks have led to skepticism in the market, and sets it up for a move higher if there is anything officially announced. "I wouldn't think it's fully baked in. I would say the stimulus is a positive catalyst, unless it's less than $900 billion," said Art Hogan, chief market strategist at National Securities.
While stocks surged in the past week, bond yields also moved higher. Yields move opposite price, and bond yields have been rising on stimulus expectations. More spending means more debt, and that sends rates higher.
The 10-year was at 0.97% Friday, and appeared ready to move back to the 1% level for the first time since March.
"Is it the case here, stimulus is already factored in, and will people take their money and run?" said Schumacher.
The S&P 500 gained 1.7% in the past week, ending Friday at 3,699, a record high. The Dow also ended up 1% at a record 30,218, and Nasdaq gained 2.1% to a record 12,464.
Vaccine news has been a catalyst for the market's surge since early November, when Pfizer first revealed the high efficacy of its vaccine. Since then Moderna and Astra-Zeneca both revealed results of their own vaccines.
A Food and Drug Administration advisory committee meets Thursday on emergency use authorization for the Pfizer and BioNTech vaccine.
"They're starting to roll it out in the U.K, and that's something that's going to be watched here to see how it unfolds," said Quincy Krosby, chief market strategist Prudential Financial. "That's the next issue for the market. The deliveries, the distributions. Are people being jabbed? These are all questions the market is concerned about about because they're looking forward to it unrolling smoothly in the U.S."
About 3 million people will be vaccinated in the initial rollout. Moderna's vaccine is expected to be approved the following week, and by year-end both vaccines are expected to reach 20 million people in the U.S.
"The vaccine news has started to see a bit of diminishing return in terms of its wow factor," said Hogan. "There's going to be some volatility around the logistics."
Krosby said the virus remains in the forefront for the market because of the continuing spread and its economic impact as activities are shut down. California Thursday announced new restrictions with stay at home advisories in some regions.
"The big question is how long does the Covid surge last?" Krosby said.
The virus shutdowns appear to be behind a slowdown in the labor market, and economists say it could slow activity into the first quarter. November job growth of 245,000 was about 200,000 less than expected. That makes Thursday's weekly jobless claims more important for markets.
There is also CPI and PPI inflation data Thursday and Friday.
"There is this push pull in the market regarding inflationary pressures," said Krosby. "It's not expected, which is why if it does print higher, it could ignite the conversation regarding inflation."
3:00 p.m. Consumer credit
6:00 a.m. NFIB survey
8:30 a.m. Productivity and costs
10:00 a.m. QFR
10:00 a.m. Wholesale trade
10:00 a.m. JOLTS
8:30 a.m. Initial jobless claims
8:30 a.m. CPI
10:00 a.m. QSS
2:00 p.m. Federal budget
8:30 a.m. PPI
10:00 a.m. Consumer sentiment
12:40 p.m. Fed Vice Chairman Randal Quarles