Sunday's French election will clearly set the tone for markets, but Washington also has the potential to create volatile swings in the coming week around health care, tax reform and a possible government shutdown.
There's also about 190 S&P 500 companies reporting earnings, an unusually high number in a one-week period. With the exception of a few high-profile misfires, Goldman Sachs for one, earnings are off to a good start.
The range of sectors and companies reporting — from Alphabet (NASDAQ: GOOGL) to Exxon Mobil, (NYSE: XOM) Caterpillar (NYSE: CAT) and Bristol-Myers — should give much more context to what could be the best earnings growth in more than five years.
Polls Friday showed that France's former economy minister Emmanuel Macron was neck and neck with far-right candidate Marine LePen. LePen has campaigned on taking France out of the euro, and it would spook markets if she looks strong enough after Sunday to win in the second round.
Going into the weekend, many analysts expected Macron and LePen to emerge as finalists in the first round of the presidential election.
The base case among many analysts is that Macron would likely go on to win the second round May 7, and that would be a positive. But if the outcome looks any different Sunday, there could be some real market turbulence with stocks and other risk assets selling off, and investors moving into the safety of bonds and gold.
The other two leading candidates are leftist Jean-Luc Melenchon and mainstream conservative Francois Fillon, who markets also prefer over LePen and Melenchon.
"There are more negative than neutral or positive scenarios," said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch.
"If Macron does make it to the second round that should take some of the tensions out of markets. As long as he makes it, some of these other very negative scenarios go away," said Cabana.
If Fillon wins instead and is pitted against one of the extremists, markets may take it badly. "Our European team thinks we have French spreads widen out pretty noticeably in that type of scenario and we could see the 10-year [Treasury] continue to rally," he said. Analysts say there could also be a risk-off scenario, where stocks and the euro sell off.
Washington wild card
President Donald Trump will have been in office for 100 days at the end of the week, and while he says the century mark is not a big deal, many in the markets have noticed that the legislative agenda has been light.
Trump may have noticed as well, since he said he hoped to see a health care vote when Congress comes back in the coming week and he promises some type of tax reform announcement on Wednesday.
"I think his hundred days is up, and from a symbolic standpoint, he's trying to get an outline out there within 100 days," said Peter Boockvar, chief market analyst with the Lindsey Group.
While stocks have held most post-election gains, bond yields have fallen in recent weeks as investors increasingly discount the chances for Trump's pro-growth policies to become law this year.
"We think the bond market is sending a very pessimistic signal," said Cabana. "We think markets are overly pessimistic on the odds of something ultimately getting done, and we do think there's a lot of will in Washington to try to deliver on some type of tax reform. How broad and sweeping it will be are fair questions."
The White House plan on Wednesday will be scrutinized to see what it includes in terms of revenues to pay for the tax cuts. The White House has not thrown its support behind the border-adjustment tax which is in the congressional plan and would provide an estimated $1 trillion over 10 years. Congress was also counting on repealing Obamacare as a way to pay for some of the tax breaks, but the fate of the health-care plan is not clear.
Nonetheless, Trump said Friday that the tax breaks he will propose are "massive."
"The market's running out of patience, and they want to see some details. Now, when he talks "big" and "massive," he throws those words around way too loosely, and we don't know what they mean," said Boockvar.
Even if Congress doesn't take on health care again in the coming week, it will have to deal with passing a continuing resolution to keep the government from shutting down. Most analysts expect it to be extended but a battle could erupt over the debt ceiling later in the year.
Tom Block, Washington policy strategist at FundStrat, said there's a 30 percent chance Congress will fail to pass the continuing resolution, though he does expect to see a short-term fix to be adopted while they work out the details. Such things as construction of the wall on the Mexican border and increased defense spending are part of the debate.
Block said Republicans will need to get some Democratic support for the bill so there will be intense negotiations to head off a shutdown. "In the end, Trump doesn't want it. It happens on the anniversary of his 100 days. He's going to push very hard to find a compromise," said Block.
Block said there was a reason Trump on Friday announced plans to discuss tax reform Wednesday. "He wanted to change the subject. They're going to have a lot of very bad headlines over the next week over the government shutdown," he said.
Earnings and economy
Besides the gusher of earnings news, there are a few important economic reports, including GDP for the first quarter Friday. It has been tracking at just under 1 percent, according to CNBC/Moody's Analytics Rapid Update. There are also durable goods on Thursday.
As for earnings, earnings look set to grow by more than 11 percent in the first quarter, based on estimates and actual reports, according to Thomson Reuters. Seventy-six percent of the earnings reports have come in above estimates.
Sixty-two percent of companies beat revenue estimates, and revenues are expected to be up just under 7 percent, according to Thomson Reuters.
What to Watch
Earnings: Alcoa (NYSE: AA), Newmont Mining, (NYSE: NEM) Kimberly-Clark, (NYSE: KMB) Illiinois Tool Works (NYSE: ITW), Hasbro, Halliburton, (NYSE: HAL) Whirlpool, Express Scripts, Ameriprise, Range Resources, Canadian National Railway, J&J Snack Foods, Owens-Illinois (NYSE: OI), Crane
11:30 a.m. Minneapolis Fed President Neel Kashkari
3:15 p.m. Minneapolis Fed's Kashkari
Earnings: Caterpillar, (NYSE: CAT) 3M, (NYSE: MMM) Coca-Cola (NYSE: KO), McDonald's (NYSE: MCD), Dupont, Eli Lilly, Novartis, AutoNation, Baker Hughes, SAP, Biogen, AT&T, (NYSE: T) Lockheed Martin, PulteGroup (NYSE: PHM), Freeport-McMoran, JetBlue, (NASDAQ: JBLU) AK Steel, Polaris, Paccar, Valero Energy (NYSE: VLO), Xerox, TransUnion, Arconic , Capital One, Chipotle Mexican Grill, (NYSE: CMG) Discover Financial, U.S. Steel, Juniper Networks, Stryker, Panera Bread (NASDAQ: PNRA), United Health Services, Valvoline
9:00 a.m. S&P Case-Shiller home prices
9:00 a.m. FHFA home prices
10:00 a.m. New home sales
10:00 a.m. Consumer confidence
Earnings: Boeing (NYSE: BA), Daimler, Fiat Chrysler, Pepsico, (NYSE: PEP) United Technologies (NYSE: UTX), GlaxoSmithKline, Anthem, Alaska Air, Northrop Grumman, General Dynamics (NYSE: GD), Dr. Pepper Snapple, Hershey, (NYSE: HSY) Norfolk Southern, State Street, Credit Suisse, Hess, Seagate Technology, Twitter, Nasdaq, Amgen, (NASDAQ: AMGN) Paypal, F5Networks (NASDAQ: FFIV), Tractor Supply, Buffalo Wild Wings (NASDAQ: BWLD), Boston Beer, SixFlags, CR Bard, Whiting Petroleum, Suncor
Earnings: Alphabet, (NASDAQ: GOOGL) Microsoft (NASDAQ: MSFT), Intel, (NASDAQ: INTC) Amazon.com, (NASDAQ: AMZN) Raytheon, Baidu, Starbucks (NASDAQ: SBUX), Expedia, Comcast (NASDAQ: CMCSA), Bristol-Myers Squibb, (NYSE: BMY) Flex, GoPro, Western Digital, Vertex , Sirius XM Radio, Under Armour, American Airlines (NASDAQ: AAL), Southwest Air, MGM Growth, Generac, Domino's Pizza, CME Group, KKR, Johnson Controls, Union Pacific (NYSE: UNP), UPS, Total, Celgene, Deutsche Bank, Alexion Pharma, Nintendo, AbbVie, Bayer, Air Products
7:45 a.m. ECB rate decision
8:30 a.m. ECB President Mario Draghi press briefing
8:30 a.m. Jobless claims
8:30 a.m. Durable goods
8:30 a.m. Advance econ indicators
10:00 a.m. Pending home sales
10:00 a.m. Housing vacancies
Earnings: Exxon Mobil, (NYSE: XOM) Chevron (NYSE: CVX), Colgate-Palmolive (NYSE: CL), Honda Motor, Barclays, UBS, Sony, Synchrony Financial (NYSE: SYF), Spirit Airlines, Autoliv, Sanofi, Spirit Airlines, Goodyear Tire, (NASDAQ: GT) Calpine, Cabot Oil and Gas, Phillips 66, Weyerhaeuser
8:30 a.m. Q1 adv Real GDP
9:45 a.m. Chicago PMI
10:00 a.m. Consumer sentiment
2:30 p.m. Philadelphia Fed President Patrick Harker
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