Rally on? Data, oil may hold the key

nflation data out Friday morning will be key for markets trying to project the path of Fed tightening. Investors will also continue to look for signs of stabilization in oil prices.

The Federal Reserve's preferred measure of inflation, the price index of personal consumption expenditures that excludes food and energy, is due at 8:30 a.m. ET.

"I've been in agreement with the market that inflation's dead, but that's old fashioned," said Bryce Doty, senior fixed income manager with Sit Investment Associates. Fed Chair Janet "Yellen sees come August, the year-over-year comparisons on oil are going to get tougher. Inflation is going to appear in a rising trend."

The January PCE report also includes data on personal income and consumer spending, ahead of the 10 a.m. release of final consumer sentiment for February.

"If we see any pickup in spending that would lead the market to close the week higher," said Peter Cardillo, chief market economist at First Standard Financial.

All components of the PCE data are expected to show a slight rise month over month, while sentiment should hold steady from the previous 90.7 print. A miss in consumer confidence earlier this week weighed on U.S. stocks.

Also out at 8:30 a.m. is the second read on fourth-quarter GDP, which is expected to come in slightly softer than the initial 0.7 percent read. The trade deficit for January is also due at 8:30 a.m.

As stocks remain closely correlated to oil, the weekly U.S. oil rig count could add to increasing signs domestic oil production is dropping. The data would follow Thursday's report that the Venezuelan oil minister Eulogio Del Pino said he'd reached an agreement with Russia, Saudi Arabia and Qatar on the need for a mid-March meeting.

Oil prices reversed on the news to settle nearly 3 percent higher at $33.07 a barrel, helping push stocks to close at session highs Thursday.

The Dow Jones industrial average closed up 212 points at 16,697.29, while the S&P 500 gained 1.13 percent to close at 1,951.70, topping the 1,950 resistance level with financials leading gains.