Coming Week: Warm Spell

Traders may have enjoyed the ability to roam outside during this winter's unseasonably warm weather, but the balmy climate may come back to haunt them in the coming week as they dig through questionable economic data.

"It's going to be a big week for economic data, but a lot of it will be compromised by so-called seasonal adjustments," says Gina Martin, economist at Wachovia. "The warm weather in January may cause some unforeseen swings in the data, making it look rosier than it would have been otherwise, and that could cause some volatility in the markets as well."

Already this month, strong retail sales and housing starts have been attributed to January's gentle weather. On Monday, January new-home sales numbers arrive, and that data could have a similar boost from the sunny climate. Economists surveyed by Thomson First Call expect the annual rate for new-home sales to total 1.26 million for the month. That figure is slightly down from December's 1.27 million rate, which was stronger than expected.

"People attribute the strength in new-home sales to the warm winter, and the market wants to see that trend continue," says Robert Pavlik, chief investment strategist for Oaktree Asset Management. "If [new-homes sales] drop too much then the talk of the housing bubble popping will get louder and will scare the market."

Pavlik says similar market jabber could sink stocks when revisions to the fourth-quarter gross domestic product are released on Tuesday morning. Economists are looking for growth of 1.5%, up from the prior estimate of 1.1%. The GDP deflator, a well-watched inflation indicator, is expected to remain steady at 3%.

"If we get a GDP or deflator number that's much stronger than the consensus estimate, then it could hurt the market because people will be talking about a tougher Fed," says Pavlik.