Fed and Jobs Report Cap a Big Week for Markets
"It could be wild. It's the first week in a couple where we shift our focus to the macro," said Art Hogan of Lazard Capital Markets. "We've got PMI, the ECB, the Fed meeting and the job number. All of that could steal the show. On top of that, we have a huge parade of earnings."

The Fed is expected to reaffirm that it will continue with its quantitative easing policy, or asset purchases. It may tweak its comments to reflect a weaker economy. But there is unlikely to be any talk of "tapering" off of the Fed's $85 billion in monthly Treasury and mortgage securities purchases,which had been raised by some Fed members.

"They're in a watchful, waiting mode right now, waiting to see if the summer swoon is upon us, or whether there will be a break of the trend," said Tony Crescenzi, strategist with Pimco. "That will determine whether there's going to be talk of tapering."

(Read More: Jim Cramer: Mid-Week Selloff Ahead?)

"We're going to have to watch the payroll numbers in particular and the performance of labor-market indicators," he said, adding investors will also be watching for clues several weeks later when the meeting minutes are released. The Fed has made it clear it will base its decisions on policy moves on the economy and employment, in particular.

Stocks were higher in the past week, recovering much of the losses of the prior week. The Dow gained 1.1 percent, to finish at 14,712, and the S&P 500 gained 1.7 percent, ending at 1582 while the Nasdaq rose 2.3 percent to 3,279. The worse performing sectors were the defensive ones, which have been leading the market higher. Telecom was down a half percent. Consumer staples was off 0.4 percent and the healthcare sector was down 0.2 percent.

Analysts have been expecting a stock-market correction, but Hogan said the market may be experiencing sector corrections instead and is consolidating through sideways trading. "What we saw this week was a lot of safety plays corrected,"he said.

Commodities markets also gained in the past week, after a big sell off the week before. Gold was up 4.2 percent and West Texas Intermediate crude was up more than 5 percent.

Richard Bernstein of Richard Bernstein Capital Management said the commodities correction is a positive for stocks. "That is a reflection of what you saw in terms of rotation in large caps in the first quarter. The rest of the world is weakening more than people think," he said. But it is a positive for the U.S., as prices for things like gasoline fall, providing a break for consumers.

Bernstein said he remains bullish on the stock market. "We had a string of really good economic numbers for a while. Now we're getting a string of kind of 'eh' numbers. The big thing is that the economy continues to improve. I don' think there's been too much data that says the economy is deteriorating. It's a question of how rapidly or slowly it's decelerating," he said. The latest piece of data to disappoint, was the first-quarter GDP report,which at 2.5 percent was softer than the 3-percent growth expected.

(Read More: The Economy May Stink, but the Market Doesn't Care)

Crescenzi said the market is used to deteriorating economic data in the spring, as it has in the past three years, but this spring should be a bit better.

"Markets are expecting weakness," he said. "For markets to be affected by the seasonal swoon, the data would need to even worse than in the last few years. The weakness would have to intensify for the 'risk off' mentality to surface." But if no summer rebound materializes, as expected, that would be a big negative for markets.

(Read More: Wall St Week Ahead: Central banks, economic data to steer investors )

Bernstein said he's fairly optimistic about the stock market. "The most important question is are corporate profits going to improve from here or not, and everything we look at says, they're going to improve. It looks to us like the trough in the growth rate in corporate earnings could be now," he said. He had previously expected earnings to trough in the second quarter.

So far, about half the S&P 500 companies have reported and 69 percent are beating earnings estimates, according to Thomson Reuters data. The revenue numbers in the first quarter have been surprisingly weak, with 58 percent of companies missing forecasts.

"As long as people worry about the economic numbers, and as long as people worry about volatility, that's what bull markets are all about. It's when people are confident the market is going up and people are confident the economy is ripping, that's when I worry about the market," he said.

Bond Action

After Friday's disappointing GDP report, yields on the 10-year Treasury note dipped as low as 1.65 percent intraday, but analysts say there could be more than weak data affecting the Treasury market.

The Treasury Wednesday is expected to announce the size of the next coupon auctions of 3-year and 10-year notes and 30-year bonds. After the Treasury this past week announced it would reduce the amount of short-term bills it is issuing next week, the market began speculating it may use the quarterly refunding announcement to say something about its future funding plans of notes and bonds. That's especially important since those durations are in the sweet spot of what the Fed purchases each month.

(Read More: You Should Watch Next Week's Treasury Announcement)



"Last year, the deficit was $1.1 trillion. This year, it might be about $845 billion. It's possible that there's a cut in coupon issuance, along with bill issuance. That would be the first cut since 2010. It might be having some influence this week in driving yields down," said Crescenzi.

What to Watch

Monday

Earnings: CNA Financial, Lowe's, Eaton, Express Scripts, General Growth Properties, Hartford Financial, Herbalife, Masco, Newmont Mining, Suncor, Buffalo Wild Wings, Riverbed, Texas Roadhouse



8:30 am: Personal Income



10:00 am: Pending home sales

10:30 am: Dallas Fed survey

Tuesday



Fed meeting begins



Earnings: AB InBev, Deutsche Bank, BP, Pfizer, UBS, DreamWorks Animation, Leap Wireless, Genworth Financial, Boston Properties, Aetna, ADM, Avon Products, Marathon Petroleum, McGraw-Hill, NYSE Euronext, Sirius XM Radio, Starwood Hotels, Tenet Healthcare, Thomson Reuters, US Steel, Valero, Western Union



8:30 am: Employment cost index



9:00 am: S&P/Case-Shiller home price index

9:45 am: Chicago PMI

10:00 am: Consumer confidence

10:00 am: Housing vacancies

Wednesday



May Day



Monthly auto sales



Earnings: Facebook, MasterCard, Merck, CVS Caremark, Comcast, Time Warner, CBS, Marriott, MetLife, Murphy Oil, Prudential Financial, Seagate, Clorox, Devon Energy, Chesapeake Energy, Energizer, Humana, Hyatt Hotels, Novo Nordisk, Yelp, Fidelity National Financial



7:00 am: MBA mortgage applications



8:15 am: ADP employment

8:58 am: Manufacturing PMI

9:00 am: Treasury refunding announcement

10:00 am: ISM manufacturing

10:00 am: Construction spending

2:15 pm: Fed statement

Thursday



Chain store sales



Earnings: GM, AIG, Kraft Foods, Cigna, CME Group, Beazer Homes, Becton Dickinson, Statoil, Royal Dutch Shell, Estee Lauder, Sanofi, Siemens, Cardinal Health, Mylan, Weatherford International, Teva Pharmaceuticals, Gilead Sciences



7:30 am: Challenger layoff report



7:45 am: ECB announcement

8:30 am: International trade

8:30 am: Productivity and costs

Friday



Earnings: Berkshire Hathaway, Automatic Data, CBOE, Duke Energy, Madison Square Garden, Moody's, Spectra Energy, Wellcare Health



8:30 am: Employment report



10:00 am: Factory orders

10:00 am: ISM nonmanufacturing

Saturday



Berkshire Hathaway annual meeting