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Dow Hangs Under Record High as Sequester Looms

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Washington's budget wrangling and a slew of data gets March off to a busy start, as traders watch the Dow to see if it can take another run at record highs.

Stocks sold off into the close Thursday, after the Dow came within 15 points of its all-time closing high of 14,164. The Dow finished down 20 points at 14,054 but was still up 1.4 percent for the month of February. Month end index rebalancing drove stocks lower in late trading, traders said. The S&P 500 was off 1 point at 1514, and is up 1.1 percent for the month.

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Traders reported heavy activity in mini S&P futures right around the close. The Nasdaq, dragged down by Apple, fell 2 points to 3160, and was up 0.6 percent for the month. Stock futures traded lower in early evening trading.

"There's been a lot of mysterious market moves lately. Things have moved without any kind of discernible news attached," said Steve Massocca of Wedbush Securities. He pointed to a rapid 100 point run up in the Dow Wednesday.

But still stocks ended February with a gain, after two strong sessions this week. Historically, a positive January and February suggests a positive year for stocks, according to Sam Stovall, chief equity strategist at Standard and Poor's Capital IQ. Since 1945, the S&P 500 has finished the year positively nearly 70 percent of the time when the first two months of the year show gains. The S&P is up 6.2 percent for the year so far.

What to Watch

While stocks have paid little heed to news of the "sequester," or automatic spending cuts that would start at midnight Friday, traders will be watching talks between GOP House Speaker John Boehner and President Barack Obama at 10 a.m. ET.

The two sides have failed to find a compromise that would stop the $85 billion annual cuts from hitting the federal budget, with half of them taking aim at the Defense Department. Economists expect the sequester to amount to about a half percent drag on GDP for the year, and the cuts at this stage in the fiscal year would total just over $40 billion.

(Read More: Investors Too Focused on Fed's Minority Views: Pro)

Economic reports could be important Friday.

Personal income is expected to show a decline and spending is expected to be just slightly higher at 0.2 percent. Income and spending and core PCE prices are all reported at 8:30 a.m. ET. There is ISM manufacturing data at 10 a.m., and while seen slightly lower at 52.5, it is expected to show an expanding economy. Construction spending is at 10 a.m., and consumer sentiment is reported at9:55 a.m.

Monthly car sales will also be reported by automakers, and are expected to show an annualized selling rate of 15.1 million vehicles, just slightly off from January.

A few companies report earnings Friday morning, including Best Buy, Foster Wheeler, Magna International and Pepco Holdings. Berkshire Hathaway reports after the closing bell.

Fed Chairman Ben Bernanke, after two days of Congressional testimony this week, speaks on Friday evening at 10 p.m. ET. He will be speaking on monetary policy and low long-term interest rates at the San Francisco Federal Reserve Bank Research Conference.

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