Investors may be a bit more cautious in the week ahead, with stocks seeking direction in quiet trading and the bond market’s warnings about recession getting louder. Stocks eked out modest gains on Friday, but were negative for the week. The market could be sluggish in the coming Thanksgiving holiday week, one of the quietest of the trading year. “It feels like we may be in the eye of the storm, where you get this calm blue sky period before we start to see more of the negative impacts from the continued slowdown in the economic and corporate profit growth,” said Dan Suzuki, deputy chief investment officer with Richard Bernstein Advisors. S & P 500 earnings were up 4.2% for the third quarter so far, but they would have contracted 3.6% if the energy sector were excluded, according to Refinitiv. “I think we have a pretty high degree of visibility into the idea where profits growth is going to continue to slow, and we’ll probably be in a profit recession in the next quarter or two,” Suzuki said. “That’s going to cause its own pressure on markets because markets never look through a profit recession.” The coming week is a short one, with the Thanksgiving holiday on Thursday. The stock exchanges will close at 1 p.m. ET Friday. But still, there are a few key items to watch, including a flurry of economic reports, and Wednesday afternoon’s release of minutes from the last Federal Reserve meeting. There are also earnings from a handful of retailers, which are important after a mixed performance from chain stores in the past week. Nordstrom will be one to watch on Tuesday after Macy’s stock rose on its better earnings and guidance in the past week. Wednesday’s data includes durable goods, new home sales, unemployment claims, and consumer sentiment. There are also releases of S & P Global’s PMIs for manufacturing and services that day. The Thanksgiving holiday on Thursday should mean markets will likely be quiet Wednesday and Friday. Traders will be monitoring reports on Black Friday holiday shopping for feedback on the consumer. “It’s really a week where data dependence is the key phrase,” said Julian Emanuel, senior managing director at Evercore ISI. “The bias [for stocks] is higher unless data continues to deteriorate and the Fed stays on its hawkish slant… which has clearly been reinforced in the last 48 hours.” Looking ahead to December Stocks are typically higher in the fourth quarter of midterm election years, but Emanuel said December’s performance isn’t the strongest in those years. Stocks typically rise 1.4% in December, on average, but just 1.2% in midterm years, he said. “There’s every reason to believe stocks could slosh around with an upside bias… or with a downside bias if the data continues to roll over and the Fed continues to refuse to acknowledge that,” Emanuel said. The next big event for markets could be the November employment report on Dec. 2. After that, market focus swings to the consumer price index on Dec. 13, which is also the first day of the Fed’s next two-day rate meeting. In the past week, Fed officials maintained their tough tone and some even sounded more hawkish. Following October’s cooler inflation data, markets had been looking forward to smaller rate increases and a potential pause in Fed’s rate hiking, possibly early next year. Emanuel pointed to comments from St. Louis Fed President James Bullard Thursday. Bullard rattled some investors when he said the proper zone for fed funds could be in a 5% to 7% range , well above market expectations. Bullard’s comments come as the the market debates whether inflation could cool enough to allow the Fed to take its foot off the rate-hiking pedal before the economy tips too far into recession. Indeed, stocks rallied hard last week after October’s inflation report was cooler than anticipated. While the Fed is widely expected to hike by a half point in December, Boston Fed President Susan Collins Friday said there was still a chance for a 75 basis point hike. If so, that would be the fifth consecutive increase of that magnitude. A basis point equals 0.01 of a percentage point. An emerging outlook for the economy Economists also do not agree on the course of the economy. Goldman Sachs economists see a soft landing for the economy next year, but JPMorgan economists see a mild recession. Emanuel said Evercore ISI expects flat growth. “We’re of the mind that the Fed is becoming uncomfortable with the loosening of financial conditions. There’s one thing to see the pause on the horizon, but then you have to realize there’s another 100 basis points [of rate hikes] before the horizon,” Emanuel said. A rallying stock market is a sign of looser financial conditions. In the past week, traders have been watching an important signal from the bond market which typically lies below the surface unless it moves dramatically. The spread between the 10-year and 2-year note has become more inverted, meaning the 2-year yield is sharply higher than that of the 10-year. A so-called inversion is viewed as a recession warning. “The Fed has told us they are willing to accept a recession to maintain long-term price stability,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “That means the Fed might end up with a 5-handle on the terminal effective rate, but eventually the economy is going to slow to such an extent that there will be enough demand destruction so the Fed will eventually cut rates.” The terminal rate is the Fed’s end point, or level where it stops raising its target rate. The 2-year yield, which most reflects Fed policy, was at 4.53% late Friday, while the 10-year was at 3.82%. Yields move opposite price. “The stock market is complicating the Fed’s objective,” said Lyngen. He said when stocks are stronger and volatility falls, financial conditions loosen and the Fed feels it needs to keep the pressure up with tighter policy. “This is a very choppy, classic unattended market that could go in either direction with little or no macro implications. We got [the spread on] 2s/10s down to negative 71.4 basis points today. That is a four decade extreme, and we’re now going to consolidate a bit.” he said. Week ahead calendar Monday Earnings: Dell Technologies , Agilent, Urban Outfitters, Zoom Video, JM Smucker, Jacobs Solution Tuesday Earnings: HP, Best Buy , Dick’s Sporting Goods, Nordstrom, American Eagle Outfitter, Warner Music, Burlington Stores, Medtronics, Analog Devices, Jack in the Box, Vipshop, Dollar Tree 11:00 a.m. Cleveland Fed President Loretta Mester 2:45 p.m. St. Louis Fed President James Bullard Wednesday Earnings: Deere 7:00 a.m. Mortgage applications 8:30 a.m. Initial unemployment claims 8:30 a.m. Durable goods 9:4 a.m. S & P Global Manufacturing PMI 9:45 a.m. S & P Services PMI 10:00 a.m. New home sales 10:00 a.m. Consumer sentiment 2:00 p.m. Federal Reserve meeting minutes Thursday Thanksgiving holiday Markets are closed Friday Black Friday Stock market closes at 1 p.m. Bond market closes at 2 p.m.