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In addition, the Federal Reserve and a wave of earnings will have investors on their toes. This week, almost a third of companies in the S&P 500 will be reporting earnings. For companies that have already reported earnings, rising costs in materials and transportation have been cited as dents to their profits. President Joe Biden recently released minor details of his "American Families Plan" that will increase taxes on wealthier families.

The Fed will be meeting on Tuesday and Wednesday to discuss inflation in the economy.

“I think the Fed would like not to be a feature next week, but the Fed will be forced from the background because of concerns about inflation,” said Diane Swonk, chief economist at Grant Thornton. The Fed is not expected to change its policy. Furthermore, the Fed's inflation gauge is expected Friday.

“I think the Fed has no urgency to shift monetary policy at this point,” said Ian Lyngen, head of U.S. rates strategy at BMO. “The Fed needs to acknowledge that the data is improving. We had a strong first quarter.”

“The Fed is trying to let a lot more people get out onto the dance floor before it calls ‘last call,’” said Swonk. “Really what Powell has been saying since day one is if we take care of people on the margins and bring them back into the labor force, the rest will take care of itself.”

On the other hand, stocks sold off heavily when news broke that the Biden administration was expected to propose a capital gains tax hike to 39.6 percent for people earning more than $1 million a year. This tax rate combined with a 3.8 percent net investment income tax, would more than double the current long term capital gain tax of 20 percent. Furthermore, Biden expects to raise the income tax on earners over $400,000.

“I think a lot of people are starting to price in the risk there going to be a significant increase in both corporate and capital gains taxes,” said Lyngen.

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