Traders are also keeping a wary eye on Europe, where Ireland's fiscal woes are expected to stay in the forefront, as European finance ministers meet.
Stocks in the past week took their worst pounding in three months as a host of influences affected markets. Negatives included the G-20's criticism of U.S. policy, and the lack of accord among the group. There were also fears of rising rates in China after a hotter than expected inflation report. The peripheral European debt worries, and Cisco's earnings warning were also contributors to a sell off in a market that has climbed more than 15 percent since late August. Finally, commodities sold off.
The Dow fell 2.2 percent in the past week to 11,192 in its worst weekly decline in three months. The S&P 500 was off 2.2 percent to 1199, and Nasdaq, hit hard by tech, fell 2.4 percent to 2518.
"I think the data will be enough of a focus so we can shrug off some of these exogenous risks. The industrial production number ought to be good," said Barry Knapp, head of equities portfolio strategy at Barclay's Capital.
"..These risks, like Chinese monetary tightening and European sovereign debt, they're not an issue while things are going the right way in the U.S.," he said.
For the most part, recent data has come in better than expected, including ISM manufacturing data, the October jobs report, trade data and jobless claims.
"Everybody's looking for a pullback," said Jefferies managing director Art Hogan. "I actually think we're going to see things firming up, and we'll start debating a few things, like does the Fed have to do all the $600 billion (in quantitative easing.)"
He said stocks could regain ground if the data continues to improve, and if the discussion in Washington turns toward cooperation when Congress returns to work Monday. Congress is expected to take up the issue of the Bush tax cuts, which are set to expire at year end.
"If you look at gridlock, there's good gridlock and bad gridlock. Good gridlock is when you get cooperation and things get done," he said. Congressional Republicans are angling to extend all of the Bush tax cuts, and President Obama has said he would discuss that option though he favors eliminating tax cuts for the wealthy.
Knapp said he expects General Motors to be a positive force in the market when it goes public Thursday. "It could be a positive catalyst for the market. Some people have been talking supply and whether that's a negative for equities, but I don't think so. Supply isn't the issue. Right now, it looks like demand will be off the charts," he said.
Fed Under Fire
The Fed's image took a battering this past week, as G-20 leaders met in Korea and a number of countries expressed concerns about the Fed's quantitative easing (QE) program, and the decline in the dollar. The dollar has weakened, and stocks and commodities have risen since the Fed first suggested the program in late August.
"I'm sure the Administration wasn't expecting this type of backlash for QE2," said Stephen Stanley, chief economist at Pierpont Securities. The Fed has announced it would purchase $600 billion in Treasury securities in an effort to push down interest rates and reflate assets.
"The Fed's credibility to some degree has been damaged anyway, but the fact they've had so much blow back on QE2 from all sorts of corners is a problem. (Fed Chairman Ben) Bernanke, in particular, has staked a lot on this policy. If he doesn't get the kind of results he's looking for, it's a serious issue for the Fed,' said Stanley.
Investors will be watching for comments on the easing program when Bernanke speaks in Germany Friday to a European Central Bank Banking Conference.
The first purchase by the Fed under the controversial program was Friday, and it caused a dust up in the Treasury market as rates rose into it, opposite to the intended direction.
"This market's got volatility, and looking at the Fed purchase and what they bought and to look at he market sell off like that, is not a big sign of confidence," said Cantor Fitzgerald's Brian Edmunds.
"I think today was one of those classic kind of game the system trades. People sold aggressively in the Fed purchase. There there were willing sellers afterwards, all thinking the street was leaning long and money was coming off risk assets and other places," said Edmunds on Friday afternoon.
The Fed bought $7.2 billion securities and was offered $29 billion in the 5-year sector. On Monday, the Fed is expected to buy $7-9 billion of 5- to 7-year notes, and it will make similar sized purchases every day.
"If they continue to buy at the same size with diminishing liquidity, that same size has a bigger and bigger impact on the market," said Stanley. "I wouldn't be surprised that they have more impact as they get into December."