Coming Week: Ready for Takeoff

Also Friday, the Labor Department releases the producer price index, a measure of wholesale price pressures, for December. Economists predict the PPI added 0.4%.

For another closely watched inflation reading, the government on Thursday will report December's moves in import and export prices.

As for economic fundamentals, prognosticators are expecting sharp reminders of pitfalls that loom for the economy on Thursday, when investors will get an update on the so-called twin deficits.

Back in October, the U.S. trade deficit ballooned by $3 billion to a record $68.9 billion, confounding forecasters who were expecting a decline. They're predicting a drop again for November, with the total deficit expected to drop to $65.9 billion -- still a level that has been called unsustainable over the long run.

Its twin, the federal budget deficit, posted a year-over-year gain of 43% to $83.06 billion in November. That figure is expected to decline by $2.8 billion for December.

Neither twin provides a bright spot, but investors have their eyes on the punch bowl, betting that strong profits and increased business spending will keep the market going higher.

"[Price-to-earnings multiples on U.S. equities] contracted last year because corporate profits grew faster than expected while the market was locked down by inflation fears," Dudack says. "Those fears should abate as the Fed eases off, and we should see valuations expand."

The earnings schedule for the week is light, but on Monday industrial stalwart Alcoa (AA Quote) is set to release its fourth-quarter results. Analysts polled by Thomson First Call are expecting the Dow component to report fourth-quarter earnings of 37 cents a share, down from the 39 cents a share recorded a year earlier. Alcoa's report usually marks the unofficial start to the earnings season, which will pick up steam after this week.