Jobs Report Looms in Busy Coming Week
Investors may also want to adjust their expectations about the economic recovery, according to the analyst. "A robust, meaningful expansion in the economy is just not unfolding. The less investors expect that to unfold, the less likely they are to be disappointed," Greenhaus said.
Still, the market will be parsing every piece of data for clues about how the Fed will proceed with monetary policy after this past week's meeting of the Federal Open Market Committee revealed some tensions within the central bank.
The Fed sent something of a mixed message to investors last week, revealing a more hawkish view of the economy yet continuing to show a bias towards a highly accommodative monetary policy.
Several Fed officials will be speaking next week, which is bound to add to the market chatter about quantitative easing, especially as economists and market pundits analyze speeches for more signs of dissent within the Fed.
With QE3 theoretically still on the table, the market may end up cheering some bad news, according to Jeff Sica, president and chief investment officer of SICA Wealth Management.
"The markets are not going to embrace moderately improving economic numbers. They are going to embrace numbers that are somewhat negative," Sica said. "Markets have become dependent on stimulus and have been liquidity-driven. Next week will be decisive in determining how dependent the market is on liquidity and how confident investors are in a liquidity-driven market. That will bring with it bouts of volatility."
Most of the big names that have reported, so far, have managed to beat earnings estimates, although the bar entering into the earnings season was set fairly low.
Companies have cited concerns about Europe and a possible slowdown in China in their guidance, but on the flip side, companies such as Caterpillar(CAT) have pointed to strength in the U.S.
"There have been pockets of weakness, but on balance this earnings season looks strong, the guidance appears reasonable and equities as an asset class are not expensive nor over-owned," said Tim Holland, portfolio manager at Tamro Capital Partners.
Holland believes the markets have been spooked by the deterioration in Europe and are beginning to expect a repeat of the summer of 2010 and 2011 once again. But he thinks there are a few factors that suggest "this time is different."