This week is going to be huge for the stock market

• This week will be a big one for the stock market as investors confront a wave of data.
• The two biggest companies in the world, Microsoft and Apple, will report earnings results.
• Investors also have to navigate a Federal Reserve interest rate decision and the January jobs report.

It's about to be a huge week for the stock market as investors confront a wave of economic data and decide whether the ongoing rally to record highs has staying power or not.

The S&P 500 is coming off two weeks that saw record highs in the benchmark index, buoyed by earnings optimism and data showing that the US economy is growing at a healthy clip even as inflation continues to show signs of cooling.

This week, though, could make or break the rally of the last two weeks, with three big events looming for investors.

Mega-cap earnings frenzy

The frenzy kicks off on Tuesday with the earnings results from mega-cap tech companies Microsoft and Alphabet. Investors will be keenly focused on commentary related to artificial intelligence, of which both companies are at the forefront of, and how it will impact their business in 2024 and beyond.

Earnings guidance will be key because profit expectations among analysts are on the high end this year after low single-digit profit growth in 2023.

"Markets are walking a fine line between expecting lower interest rates and higher corporate earnings," DataTrek co-founder Nicholas Colas said in a recent note to clients. "US equity valuations offer little room for error."

According to data from FactSet, Wall Street expects 2024 S&P 500 earnings growth of 12.2%, which has accelerated in recent months and is well above the 10-year average of 8.4%. Any disappointment in earnings guidance could send the stock market reeling as analysts adjust their profit estimates lower.

Enter the Fed

Fast forward to 2 pm this Wednesday and investors will be squarely focused on the Federal Reserve's latest interest rate decision and a follow-up speech from Fed Chairman Jerome Powell at 2:30pm.

While the Fed is expected to keep interest rate unchanged, Powell will likely offer insights into when the central bank will consider its first interest rate cut since 2019, in addition to how may rate cuts it foresees in 2024.

Investors currently expect six 25 basis point interest rate cuts from the Fed in 2024, but the Fed has guided for only three rate cuts.

That's a big disconnect, and it has market-moving implications as the gap between investors and the Fed narrows.

"This level of economic growth alongside a tight labor market and above-target inflation is likely to make the journey across the monetary policy bridge longer and riskier, with market players now pricing in the first Fed cut in May vs. March," José Torres, Senior Economist at Interactive Brokers said in a note seen by Business Insider.

After the Fed, earnings season will have another big day on Thursday, with heavyweights Apple and Amazon set to release their fourth-quarter results.

By the end of next week, more than $10 trillion in S&P 500 market value will have reported earnings results, giving investors a good sense of the current state of corporate profit growth.

Jobs report on deck

The week will be capped off by an economic data dump on Friday with the release of the January jobs report and an update to the unemployment rate.

Current estimates suggest the economy will have added 216,000 jobs in January, with an unemployment rate unchanged at 3.7%.

A strong jobs report, coupled with the strong fourth-quarter GDP report, could delay the Fed's interest rate cut schedule, whereas any signs of weakness in the labor market would hasten the Fed's decision to cut rates as they seek to avoid a recession.

The one-two punch of corporate earnings from America's biggest companies and economic data could ultimately set the direction of the stock market for weeks to come as investors grapple with whether or not the record rally can continue.

"Market direction is likely to be determined by investors focusing on the potential for a strong economy to support earnings growth, or fears that prolonged monetary tightening will challenge earnings, valuations, and economic prospects," Torres said.