Wall Street week ahead: Volatility set to return to stocks

After a holiday-shortened trading week that pinned stocks in a tight trading range, equities are poised for a bout of renewed volatility as investors watch the economy and the Federal Reserve for signs of policy changes and economic strength.

Through Thursday's close, the S&P 500 was held to its narrowest trading week since Thanksgiving as investors dealt with uncertainty regarding a forward path for the economy and a deal for Greek debt. Late on Friday, the European Union agreed to a four-month extension for Greece, and a late rally pushed the S&P 500 above technical resistance level of 2,100 after several failed attempts earlier in the week.

The index was up modestly for the week, building on a 5-percent gain over the prior two weeks.

"The market has done quite well this week holding things together," said Frank Cappelleri, technical market analyst and trader at Instinet LLC in New York.

"You have a holiday-shortened week, you have low volume, you have people probably taking a step back and deciding what we have here – do we push higher at this point, or do we need some of the extended areas pull back to a greater degree?"

With worries about Greece taking a backseat, traders next week could focus on the slew of expected economic data, including several reports on the housing market, consumer confidence, the consumer price index and the preliminary fourth-quarter reading on gross domestic product.

The data will give investors fuel to speculate on the timing and speed of an interest rate hike by the US Federal Reserve, after minutes from the central bank's January diminished expectations for a June move on rates.

On Tuesday, Federal Reserve Chair Janet Yellen gives semiannual testimony on the economy and monetary policy before the Senate Banking Committee.

"In the near-term, the Fed is pretty much out of the picture. If you look at what they said (in the minutes), they are in no big hurry to raise interest rates," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida.

"I do believe Janet Yellen at her word. They are going to be data-dependent. While we have had some softening, the general trend of the recovery is still intact."

Retailers will also garner some attention as earnings season winds down, and investors look for signs consumers have increased spending with cash saved from lower gas prices. Macy's, Dow component Home Depot, Target, Lowe's Companies and Gap Inc are among the notable names scheduled to post results next week.