The main TSX index and the Dow industrials average were lower last week despite solid jobs data out Friday showing that an improving U.S. economy cranked out 227,000 jobs last month, the third straight month of gains in excess of 200,000.
The TSX is still up 4.6 per cent year to date while the U.S. blue chip barometer is ahead 5.76 per cent as the jobs report and a slew of other recent data have reinforced the view that the American economy has turned a corner.
"The fact that we had this very robust advance in the market without really any meaningful pullback has been a bit of a surprise," said Norman Raschkowan, North American strategist for Mackenzie Financial Corp.
"But all the data has come through very well. The employment data was very good but also consumer confidence and the auto sales data and all the other elements that give you a sense that the economy is on the right path. And that it’s sort of a sustainable growth path now."
The major event this week will be the U.S. Federal Reserve's scheduled meeting on interest rates. The Fed won't be raising rates from near zero but traders will be anxious to view the central bank's latest take on the economy.
There has been some hope that the Fed would embark on another round of economic stimulus but Raschkowan thinks this highly unlikely given the recent positive signals on the economy.
The fact that this is an election year in the U.S. would also give the Fed pause in launching further economic stimulus.
"The Fed isn’t going to want to become a political issue," he said.
"Any sort of unncessary action on their parts will be sort of highly politicized and, unless there is something dramatic that happens, I would expect them to maintain a neutral course through the balance of the year."
Raschkowan thinks the market could easily trade sideways, or continue to consolidate the sharp gains netted since last October, with a catalyst for taking the market higher not appearing until first quarter corporate earnings start to come out in April.
"If you see that earnings have come through in the first quarter reasonably well and you start to see people revising earnings upward, then that will give you the next meaningful leg to the advance," said Raschkowan, "because right now, earnings estimates overall are still trending downwards."
Elsewhere on the economic calendar, traders will look to the latest U.S. inflation reading on Friday.
Economists expect to see the February data register a 0.5 per cent month over month increase, taking the annual rate up to three per cent. The rise would reflect a sharp jump in crude prices that month because of growing tensions over Iran's nuclear program.
The other key number in the U.S. is the February retail sales number on Tuesday. The forecast calls for a one per cent gain in sales and a 0.7 per cent rise excluding auto sales.
In Canada, traders will look to the January reading of manufacturing shipments. A 0.2 per cent gain is expected.
"Autos will be in the spotlight again in January's report, given surging vehicle exports recorded in that month's goods trade report," said CIBC economist Emanuella Enenajor.
"But there may be little else to cheer about as metals and machinery-related exports both plunged that month."