In this week's low-volume market, earnings news—just like almost everything else—could have a bigger-than-normal influence on stocks.
Two Dow components—Wal-Mart and Home Depot—report ahead of the opening bell. Home Depot was trading at an all-time high Monday, while Wal-Mart has been a laggard and is 21 percent from its January high.
"Today and Friday were the slowest trading days in two months," said Michael O'Rourke, chief market strategist at JonesTrading. Stocks were boosted by positive home builders sentiment Monday after being whipped earlier when a disappointing Empire State survey fell to its lowest level since 2009. "(Home builders sentiment) was a good number, but there wasn't anything special about it. Empire was terrible."
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Stocks ended the day with gains across the board. With the Dow up 67 at 17,545, and the S&P 500 up 10 at 2,102. The best sector was health care, up 1 percent, and the worst performing major sector was energy, off just fractionally.
"Ninety-two percent of the earnings are out. Maybe retailers will have something to say," said O'Rourke. "I feel like the worst-case economic data is going to be on the slightly positive side and will reinforce the case just enough to allow the Fed to tighten in September."
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Tom Simons, money market economist at Jefferies, expect to see some improvement in Tuesday's housing starts, reported at 8:30 a.m. ET.
"It's just further confirmation that despite all the concerns in the economy, housing is doing pretty well," he said. Simons said he wasn't worried about the Empire report.
"It does get a lot of eyes because it's the first manufacturing report that's out for the month, but quite frankly there's not a lot of manufacturing that goes on in the New York Fed district. It's not the bellwether for the manufacturing sector." Simons said ISM will be far more important.
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"When thinking about the Fed, it's really all about inflation, in our opinion, and inflation is all about commodities. The price of oil, in at least our view, is the biggest determinant in whether the Fed is going to go," he said. Jefferies expects a December rate hike, while many economists expect September. The odds in the market, however, have been fluctuating.
Oil Monday closed down 63 cents at $41.87 a barrel, its lowest price since March 3, 2009.