The Fed writes the script for Wall Street. The minutes of the Federal Reserve's most recent meeting of its policy-setting committee will be published on Wednesday, the second trading day of a holiday-shortened week in the United States. The U.S. stock market will be closed on Monday for Presidents Day. Wall Street will resume trading on Tuesday.
Investor interest in the minutes of the Jan. 28-29 meeting will focus on discussions surrounding the Fed's forward guidance. The U.S. central bank's 6.5 percent unemployment threshold for considering an interest-rate increase seems stale with the jobless rate now at 6.6 percent.
The Fed doesn't expect to start raising rates until at least late next year. So Wall Street will concentrate on the Fed's maneuvering over how to adjust this guidance, which is supportive of higher equity prices.
"We want to see any discussion on the language moving away from the thresholds," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "It's clear the thresholds are boxing them in.
"The market wants to hear they are flexible regarding data that perhaps continues to soften," she said. "Any sense of what it would take for them to pause the tapering will be important."
Fed Chair Janet Yellen said in her first congressional testimony last week that "unseasonably cold temperatures ... may be affecting economic activity in the job market and elsewhere," giving traders a reason to dismiss a recent soft patch of economic data.
In December, the Fed announced that it would begin to shrink the amount it spends monthly on asset purchases in its stimulus program to support the economy. The beginning of the end of the stimulus shifted market focus to fundamentals and economic data.
Traditionally market-moving numbers this week include U.S. housing starts on Wednesday and existing home sales on Friday, as well as producer and consumer price inflation on Wednesday and Thursday, respectively.
If the recent pattern continues, however, any weakness in the numbers will be disregarded, blamed on excessive cold weather, and the market will move on.
"The market is getting used to the bad weather, factoring it in," said John Canally, investment strategist and economist for LPL Financial in Boston. "But the story is, it might get to April, when we get the March data, that we have a return to what the underlying strength of the economy looks like, and then that might be overstated."
SOMETHING'S GOT TO GIVE
In this four-day trading week, technical analysis could fill the vacuum left by the uncertainty about how economic numbers reflect the underlying strength of the U.S. economy.
Last week, the S&P 500 traded above its 50-day moving average on Tuesday for the first time since Jan. 24. That level, now near 1,811, served as support on a first test shortly after the open on Thursday.
That curve is again trending higher. The S&P 500's trading range could tighten this week as it approaches the 1,850 area, near the intraday and closing record highs set in mid-January.
"The 1,850 area is very important. It's safe to say there will be a good amount of sell interest up there," said Frank Cappelleri, equity sales trader and market technician at Instinet in New York.
He added, however, that "you could make the argument that there were a lot of people ready to sell near the 50-day moving average a few days ago, and the market just blew past it."
The market's momentum is on the upside, coming off the best two-week performance of the year. Unless stocks trade relatively flat for the week, support or resistance will have to give.
For the past week, the Dow Jones industrial average and S&P 500 rose 2.3 percent each, and the Nasdaq Composite climbed 2.9 percent. It was the first back-to-back weekly gain for the three major indexes this year.
"Positive momentum came back into the picture, and people who missed the upturn put some money to work," Cappelleri said. "Indicators that were depressed have turned around, neutralized and are now back to overbought."
In the search for more catalysts to influence stocks' direction this week, traders will have a few earnings to latch on to, with the Coca-Cola Co and Wal-Mart Stores, Inc as the headliners.
Coca-Cola, the world's largest soft drink company, will post fourth-quarter earnings on Tuesday before the opening bell.
Wal-Mart is expected to report fourth-quarter results on Thursday, and more importantly, the world's largest retailer will give its 2014 earnings forecast.
With 398 S&P 500 companies having reported results so far, 66.3 percent have beaten earnings expectations, above the historical average of 63 percent. More than 64 percent have topped revenue forecasts, above the long-term average of 61 percent, both according to Thomson Reuters data.