Will rising rates start to sting stocks?

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Wary of rising rates, stock traders will keep an eye on the bond market Thursday as another wave of earnings reports roll in.

Stocks wobbled Wednesday, set off by some mixed earnings results, but held back more so by a bubbling up of interest rates. The 10-year Treasury yield rose to 2.581 percent. Treasury yields rose following a sloppy 5-year note auction, but a strong report on new home sales was also a factor. The dollar moved higher with yields.

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"We're back to where good news is bad," said Art Cashin, director of floor operations at UBS. The Fed has signaled that it will base its decision to pull back on quantitative easing on improvements in economic data, and while markets expect the Fed to 'taper' purchases, some traders would prefer to see it later rather than sooner.

Fed Chairman Ben Bernanke has said the Fed could begin to cut back on its $85 billion worth of bond purchases a month by year end, based on the economy, and many economists say it could begin to cut back on the program in September. Jobs data is a big factor for the Fed, so the weekly jobless claims report Thursday at 8:30 a.m. is likely to be important. There is also durable goods at 8:30 a.m. The Treasury also auctions $29 billion in 7-year notes at 1 p.m. ET, and this is being watched closely after the weak performance of the $35 billion 5-year auction.

Caterpillar soured the mood Wednesday, with its earnings miss but other stocks rose on solid earnings reports, including Ford and Facebook. Facebook, which reported after the closing bell, jumped 20 percent after it beat estimates for earnings and revenues. It earned 19 cents per share, after items, compared to 12 cents last year and an estimate of 14 cents per share. Facebook revenues surged 53 percent to $1.81 billion.

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As of Wednesday, 34 percent of the S&P 500 companies reported earnings. So far 66 percent of the companies beat earnings estimates, but 47 percent missed their revenue estimates, according to Thomson Reuters.

The Dow was off 25 at 15,542, and the S&P 500 was down six at 1685. Cashin said the stock market would get nervous if the 10-year rose to 2.61 or higher.

Deutsche Bank strategists Thursday argued in a note that stock market multiples still look cheap on an absolute basis relative to their fundamentals and also to credit and Treasurys.

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"There is a significant undervaluation cushion to compensate for much higher rates ( 260 basis points in the 10 year ); put another way the S&P 500 multiple is pricing in 5.1 percent in the 10 year. Our baseline sees both higher rates and a higher multiple from here," they wrote. The 10-year determines mortgage rates and other consumer loans.

What Else to Watch

Earnings are expected Thursday morning from General Motors, MMM, Bristol-Myers Squibb, Unilever, Sirius XM Radio, Starwood Hotels, Southwest Airlines, Pulte Group, Colgate-Palmolive, Credit Suisse, Under Armour, Dunkin Brands, Borg Warner, Boston Scientific, Calpine, Diamond Offshore, Dow Chemical, Cemex, Raytheon, Noble Energy, Nissan, Hershey, International Paper, McGraw-Hill Financial, Potash, Precision Castparts, United Continental, Xerox and Royal Caribbean.

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After the bell reports are due from Amazon.com, Expedia, Chubb, McKesson, KLA-Tencor, Embraer, Zynga, Callaway Golf, Cliffs Natural Resources, Starbucks, Newmont Mining, VeriSign and Tempur Sealy.