You can't help but worry a bit more about the economy in the second half now, as the market's focus shifts from a weaker-than-expected GDP report to the Friday jobs data. GDP revisions also show a recession may have started in the fourth quarter of last year.

Economists had expected Q2 to show growth of 2.3 percent with a strong boost from the stimulus rebate checks, but that number came in a bit lighter, at 1.9 percent. GDP was also revised to a negative number for the 2007 fourth quarter--a contraction of 0.2 percent. That was the first decline since 2001.

Wall Street has been expecting the coming third and fourth quarters to be weaker than second quarter so we'll be watching to see if economists start to trim those forecasts based on the Q2 result.

Deutsche Bank chief U.S. economist Joe LaVorgna's Q2 GDP estimate for 1.5 percent growth was among the lowest on the street, but close to the actual report. I asked him about that negative fourth quarter number. "It makes a little bit more sense. We could revise down to negative first quarter too," he said.

Two quarters of negative growth would mean the economy entered a recession but we won't know that for a few months.

Stocks took a hit this morning from that GDP number and also the surprise spike in jobless claims. Weekly jobless claims came in at 448,000, an increase of 44,000. That number casts a shadow ahead of the July jobs report, due at 8:30 am tomorrow. LaVorgna said he dug into the number and it appears that some of that surprise increase came from claimants who were getting extensions of unemployment benefits, not new claimants.

The July jobs report is expected to show a decline in non-farm payrolls of 75,000 and an unemployment rate of 5.5 percent.

Story Stocks
It's not all gloomy out there, and today's deal news might have given the market a bit more traction without the disappointing economic news.

That Bristol-Myers bid for Imclone this morning, on the heels of Roche's bid for Genentechis another sign M&A is alive and well, at least in the drug/biotech arena. Bristol bid $60 but that stock is flying above that bid.

Also check out ExxonMobil. It reported the biggest profit ever for a U.S. company. Its income for the quarter was $11.68 billion or $2.22 per share, but it came in below expectations. As UBS' Art Cashin told me yesterday, Exxon can't help but lose for winning. Big profits translate into big criticism with gasoline at record levels. Of course, Wall Street is not the place where you hear that criticism. It is too busy punishing Exxon because those profits were not bigger and the stock is getting slammed.

What to Watch Today
It's a busy day for economic news. Former Fed Chairman Alan Greenspan will be talking to Maria Bartiromo on "Closing Bell" today. Treasury Secretary Hank Paulson speaks at 1 pm on the economy and the White House economic team was talking to CNBC's Steve Liesman this morning.

Cramer's New Rant
"Yes, I called the bottom," Jim Cramer shouted on "Mad Money" last night as he carved up his rubber bear collection in a meat slicer. I am paying close attention to this call because it was just a year ago (July 20, 2007) when Cramer warned everyone to bail out of stocks. He was sooo right then. It will be interesting to see if he has done it again.

Questions? Comments? marketinsider@cnbc.com

Stocks could continue to run Thursday unless the market is again scorched by higher oil prices.

The stock market defied Wednesday's big 3.8 percent jump in crude. The initial move up took the steam out of an early rally, but the market shook it off and the Dow closed with a 186-point gain. The S&P was up 21 to finish at 1284.

"It's the market against oil," said Art Cashin, director of floor operations for UBS. "Given what's happened, the market's going to watch and see what goes on with oil overnight. Oil will play a big part, along with economics" in Thursday's market.

Encouraging to traders was a 2 percent gain by financial stocks. Those shares wilted against the rise in oil initially but recaptured gains, a move viewed as a positive because financials and energy are usually counter trades. Traders are also looking for any signs that the group has bottomed. The S&P energy sector was up 5.6 percent.

Oil rose $4.58 to $126.77 per barrel. The dollar was up 0.6 percent against the euro.

Econorama

The first look at second quarter GDP, the employment cost index, and weekly jobless claims are expected Thursday at 8:30 a.m. The Chicago purchasing managers survey is released at 9:45 a.m., and natural gas inventories are reported at 10:35 a.m.

Treasury Secretary Hank Paulson speaks on the economy at 1 p.m. in Washington. But first, we'll be watching CNBC senior economic correspondent Steve Liesman at 10 a.m. as he conducts a roundtable with the President's top economic advisors - Keith Hennessey, Jum Nussle and Ed Lazear.

Thursday's big economic number is second quarter GDP. Economists expect it to come in at 2.3 percent, but some of that gain is a product of stimulus rebate checks, and third and fourth quarter expectations are not that high. Some economists, in fact, see the fourth quarter as slightly negative.

"I think it's (Q2) going to be weaker than consensus for sure, " said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. His estimate for Q2 is 1.5 percent.

Steve Wieting of Citigroup though expects the number to surpass the consensus. "We're at 3 percent. I think if you look at the quarter, it's pretty good. The consumption pace, while not robust, was strong than the first quarter," he said. "The tax rebates played a role very clearly and will as well in the third quarter."

Wieting said trade added 1.6 percent. "Gross exports have added a good deal. They've been strong, but in addition to that we have an outright drop in unit imports ... It's contributed a good deal to the upside." Wieting says he expects growth to trail off and be softer in the second half. He expects the third quarter will be a number starting with a 1 as will fourth quarter GDP.

LaVorgna also expects a weaker second half. "I think a lot depends on what's going to happen after the tax rebate phase," said LaVorgna. "Regardless of what we print tomorrow, I don't think it's going to do anything to change the second half. The second half is going to be weaker than the first half." He said it will also be important to look at the revisions.

"The economy was ok when the credit crisis struck ... What happened was the consumer entered the downturn with a lot of leverage just like the financials. What happened is you have this crisis and the economy isn't able to deal with it like it might have," he said. LaVorgna said lending standards for consumers could get even tighter. "It's going to affect us over the long term," and the Fed, as a result, could "be on hold for a long time."

Earnings Central

Companies that report earnings Thursday include ExxonMobil, Aetna, Altria, Kellogg, MasterCard, Motorola, Unilever and Goodyear. After the bell, Chesapeake Energy and KLA-Tencor report.

Oil inventory data could be as much a factor for stocks as energy markets Wednesday, if the seesaw trade between the two markets continues.

Oil's 2 percent decline Tuesday helped fire up a more than 2 percent rally in the stock market. The winners were the financials, leaping 7.4 percent as the market took the Merrill Lynch $8.5 billion stock issue and balance sheet adjustments in stride. Merrill was up 8 percent. The dollar, which has also moved counter to crude, gained a full percent against the euro and was at $1.5587 per euro.

Econorama

Oil and gas inventory data is due at 10:35 a.m. Wednesday and certainly could be a major factor for oil prices. Platts expects a decline of 1.3 million barrels in crude supplies and a build in distillate inventories of 1.8 million barrels. Gasoline supplies are expected to have risen by 400,000 barrels in the latest week, according to Platts.

The ADP employment report for July is reported at 8:15 a.m., two days ahead of the government's Friday jobs data for July. Traders view the ADP employment report as an early look at what might be in the government's report though it does not always correlate. A loss of 60,000 jobs is expected in the ADP report.

Getting Technical

The Dow jumped 2.4 percent, or 266.48, to 11,397.56 Tuesday, and the S&P rose 2.3 percent to 1263.

"Basically as of right now, the S and P and Dow both put in higher lows ...," said Scott Redler, chief strategic officer of T3Live.com. "The market came out and bought Merrill Lynch on what could have been bad news for the company and the rest of the financials. Instead the street turned it into something positive, which shows the market wants to go higher short term."

"The next obstacle to overcome will be the previous resistance level we put in last week, which is 1285 on the S and P and between 11,600 and 11,700 on the Dow," he said. "The trend needs to change. We need to make a higher high and start a new uptrend... Technically, the market put in a very constructive day."

Head Fake or Windfall?

One of the biggest debates in the market is whether oil will stay at the current level and even fall further, a welcome relief for the economy and stock market. Traders have been watching to see if oil can go below $121 a barrel and stay there, a level they say could fuel further declines.

Oil fell $2.54 per barrel to $122.19 Tuesday, its lowest close since May 6. Bill Strazzullo, Bell CurveTrading partner/chief strategist, sent us a note on his recent oil call. "As far as Oil is concerned, last night we recommended clients try to sell Sept. Crude in front of $128.00 looking for $125.00, $120.00, $118.00, and onto $114.00/$113.00. If $114.00/$113.00 does not hold look for a move to the area around $100.00. We like the commodities big picture but they are under pressure with the Dollar strengthening against the Euro. That probably continues as well to 1.5200/ 1.5100," he wrote.

Dennis Gartman, of the Gartman Letter, told "Fast Money" he sees oil continuing to be under pressure. "It looks rather bad. Those who are long are throwing up all over their shoes, and those who are short are feeling like the kings of commodities. Is there any reason for that to change right now? I think not," said Gartman. He also said he thinks there's been a top formed in the euro and a bottom is forming in the dollar.

Stocks to Watch

MetLife fell in the after hours after it cut its earnings expectations. Electronic Arts was also lower in the after hours on disappointing earnings news.

Tuesday has all the makings of another choppy session with little economic data but more fretting about the financial sector and plenty of earnings news.

Financials in Focus

Financial stocks were stung Monday by continued fears of further trouble and writedowns at financial institutions. Those stocks should again be in focus Tuesday as investors assess surprise after-the-bell news from Merrill Lynch that it is issuing $8.5 billion in new equity and selling $30 billion in mortgage assets in a fire sale.

Monday started off weak for financial issues. News of two more bank failures late Friday added to negative sentiment, as did an IMF report Monday predicting that continuing problems in the credit and housing markets would hurt financial companies.

"A lot of people basically stepped back here," said Patrick Boyle, managing director at LaBranche Financial Services. "We've seen more long sellers than short sellers in the last few days."

"There still seems to be a big time concern around these financial stocks," said Boyle just before Monday's closing bell. The S&P financial sector tumbled nearly 4.6 percent, the worst performing sector.

He said money was going into Treasurys and oil, but if "oil was a big play in the tape, it would have been much higher."

Oil rose $1.47 per barrel or 1.2 percent to $124.73, lifted by new concerns about Nigeria's oil supply. Comments from Iran's president that the country had expanded its nuclear program also added support. Iranian President Mahmoud Ahmadinejad also told NBC Nightly News anchor Brian Williams that Iran would react positively to a genuine shift in position from the U.S., something traders will be watching longer term, said John Kilduff, senior vice president of M.F. Global.

The Dow was down 239 or 2.1 percent to 11,131 and the S&P 500 was down 23 or 1.9 percent to 1234. The dollar slid 0.28 percent against the euro and 0.40 percent against the yen.

The 10-year Treasury added 24/32, to 98-27/32, lowering its yield to 4.018 percent.

Merrill Pinch

The stock of Merrill Lynch was down more than 11 percent during the regular session Monday, and traders said it was hounded by rumors of more potential writedowns.

Merrill, after the bell, announced a sweeping plan to repair its balance sheet and did say it was planning to write down another $5.7 billion in the third quarter.

Merrill's is selling $8.5 billion in new shares. Singapore's Temasek Holdings, already a stake holder, will purchase $3.4 billion of common in the public offering.

Merrill also unloaded some of its most toxic securities, reducing its exposure to ABS CDOs to $8.8 billion from $19.9 billion.

Merrill said it would sell $30.6 billion gross notional amount of super senior long exposure ABS CDOs to an affiliate of Lone Star Funds for just $6.7 billion. Those CDOs were carried at a value of $11.1 billion at the end of the second quarter. This sale results in writedowns of $4.4 billion.

Merrill stock initially moved lower on this news in the after hours but it retraced some of the move. The sale signals that Merrill sees no end in sight to the mortgage mess, and it certainly raises new questions about other firms on the street. Doubly painful for Merrill is the fact its CEO John Thain had reassured analysts earlier this month the firm could avoid a stock sale.

What to Watch

New data on home prices is due Tuesday when the S&P/Case-Shiller index is reported for May at 9 a.m. Consumer confidence is expected at 10 a.m.

Also in the after hours, Amgen added to its already 12 percent gain, with a strong earnings report.

Earnings Central

Like a sailing ship waiting for the wind to shift, the stock market could drift as it focuses on oil, economic data and earnings reports in the week ahead.

But any major news developments could power a volatile move in either direction.

"We're starting the week in no man's land. We might stay there until the next big piece of news tilts us one way or the other," said Brian Rauscher, director of portfolio strategy at Brown Brothers Harriman.

Stocks go into Friday facing important manufacturing and housing data and, of course, more turbulence.

Oil again is a major a factor traders are watching. Crude chugged slightly higher Thursday, breaking a losing streak. Oil was up $1.05 to $125.49 per barrel.

The Senate also considers the housing bill, adopted by the House Wednesday. The legislation would insure up to $300 billion in refinanced mortgages and provides for a new regulator and government back stop for mortgage giants Fannie Mae and Freddie Mac .

Econorama

Economic data Friday includes durable goods orders, at 8:30 a.m.. New home sales and consumer sentiment are reported at 10 a.m. Realtytrac is also expected to release new foreclosure data.

"We expect the pace of the manufacturing economy to be slow and we expect the durable goods orders to be slow. There's a built-in preconceived notion that all the economic data we get (Friday) is going to be negative," said Jefferies and Co chief market strategist Art Hogan.

The bears returned Thursday, driving stocks sharply lower after a surprise increase in weekly jobless claims and data that showed existing home sales at a 10-year low in June. The Dow slid 283 points or 2.4 percent to 11,349, its biggest drop since June 25 and lowest close since July 16. The Nasdaq fell 45.77 points or 2 percent to 2280.11, and the S&P 500, down 29.65 points, or 2.3 percent to 1252.54.

Even with the stock market's crabbiness, the dollar again moved higher. It was up 0.5 percent against the euro, its third straight day of gains. Of course, the sagging European economy might be a factor. Check out the drop in German business sentiment Thursday, at its lowest level since September, 2005.

Hogan said Friday could also be odd because it is a summer Friday, usually a low volume day. "The problem is if today (selloff) happened a week ago, we'd be saying it's like just another day. But then we got used to the market going up, and today feels like it's the end of the world as we know it. But that's not the case. It's just another step in the process."

He said a big question is whether Thursday's selloff is a one day event or the beginning of a new selling wave. "I wouldn't give too much credibility to whatever we do tomorrow (Friday), but I think we got more selling than we needed to out of the way today. I don't think we're going to have a big upside leg but I think we overdid it in the short run," he said in a phone interview Thursday.

Going Naked

It's ironic that one of the stocks at the heart of Thursday's selling spree in the financials sector was left off the SEC's list of financial institutions it is protecting with new rules on naked short selling. That stock, Washington Mutual took a huge dive amid concerns about its funding sources. The company, in a statement, said it does not rely on commercial paper to fund its business, disputing an analyst report that raised the issue. Earlier in the week, WaMu said it was adequately capitalized to get through the housing downturn.

Housing blues were the theme du jour Thursday. Besides a more than 6 percent sell off in the recently rebounding financials, home builders were also under fire. The Philly Housing Index, off 8.6 percent, and S&P Homebuilding Index, off 10 percent, both had their worst days ever.

The S&P financial sector is still up just about 0.4 percent for the week, going into Friday.
Energy stocks have been the week's big losers so far. Birinyi Associates issued a note saying the energy sector is now the most oversold it has been since 2002. It pointed out that as of the close Wednesday, the sector is the most oversold its been since the market bottom exactly six years ago on 7/23/02. Birinyi also pointed out crude is down 14.4 percent from its July 3 high, and since 1985, there have been 45 corrections in oil bull markets. The average decline has been 13.73 percent over 25 days.

Birinyi also points out that on May 21, it sent out a bulletin noting that most energy stocks in the S&P 500 were overbought. Since that date, the sector is down 18.8 percent, and 33 of the 39 stocks are now oversold. None are overbought. For the week, energy stocks are down 3.74 percent. They are down 15.4 percent for the month.

Earnings Central

Oil's move to a six-week low has been cheering the stock market, but the question is for how long?

Traders say they are watching oil prices (and corporate earnings) again as the big movers in Thursday's markets. Also expected are two key pieces of economic data -- existing home sales at 10 a.m. and weekly jobless claims at 8:30 a.m.

In Washington, New York Fed President Timothy Geithner and SEC Chairman Christopher Cox both appear before the House Finance Committee's hearing on the financial regulatory system and the financial services industry. This is the second hearing on the topic, which is being held in the aftermath of the rescue of Bear Stearns.

The Senate is expected to take on the House-approved housing bill, and that action will be key to the markets as it was Wednesday when the House considered it. The bill is expected to be approved some time this week. President Bush has promised not to veto the legislation which includes a wide ranging government assistance package for the mortgage markets, as well as a plan to help back stop mortgage giants Fannie Mae and Freddie Mac .

Microsoft will be a focus in early trading after the resignation of Kevin Johnson, long considered a contender for the top job at the company. Microsoft also holds a previously scheduled analyst day Thursday.

Oil Slick

Oil prices continued its slide Wednesday, giving stocks room to gain. Financial shares were up another 1.9 percent, but the best performers were telecom services, up 3.35 percent. Consumer discretionary stocks were up 2 percent, and the biggest losers were energy shares, down 3.83 percent.

The Dow rose 29.88 to 11,632.38 and the S&P 500 gained 5.19 points to 1282.19. The dollar rose another 0.55 against he euro, giving it its best 4 p.m. value since July 8. For the year, the dollar is now down 6.96 percent against the euro. It stood at $1.5690 per euro late Wednesday.

Treasuries fell, lifting the yield on the 10-year to 4.148 percent and the two-year to 2.783 percent

Patrick Kernen, who trades options on the S&P 500, said he is still leery about the stock market's ability to gain just now. "If you looked at the Vix and you look at the S&P 500 today, we were up right around a half a percent in the index and the Vix was up 2 percent ... As we go higher, usually the Vix goes lower because people become more complacent," he said. "..The fact that the index was higher and the Vix was going higher makes me kind of nervous." The Vix ended at 21.31, giving back some gains in the last 10 minutes of trading, he said.

Kernen, who is a partner at Cardinal Capital, said traders are watching oil carefully. "The other thing we see is oil down $24 in two weeks. If oil hadn't done that, I think we'd still be down somewhere closer to 1225 on the S&P," he said.

Head Fake?

Oil's decline could be a relief to the economy, particularly if gasoline prices begin to move lower, said Mark Zandi, chief economist at Moody's Economy.com. I asked him if he thinks the current decline is a head fake or a real move down.

"I thought going from $100 to $145 (per barrel) was the head fake. I just couldn't explain so I think it's closer to where fundamentals are, thank goodness," he said. "It's a big plus if prices stay where they are or fall further. $145 and rising was just a vice grip on the economy."

"If you look at refinery utilization rates, they started falling because gasoline inventories are high, so I suspect gasoline prices are going to come down too," he said. "If we get south of $4, then $3.75 (per gallon), and then closer to $3.50, that'll make a big difference."

Econorama

As far as Thursday's data, Zandi says the existing home sales could soon start to show signs of bottoming, but he still expects them to register a decline.

He said a bottoming in housing is coming because "in part because the decline in housing values is restoring affordability in some markets and more importantly distress sales are rising sharply. A fourth of all sales in the second quarter were distress sales," he said.

For jobless claims, "it's a very volatile time of the year. If claims remain within 375,000 that would be consistent with continued jobs losses," he said.

Shades of Beige

Zandi said the Fed's beige book report on the economy, released Wednesday, was consistent with expectations for a weak economy. "They did focus on housing and they also threw into the mix commercial real estate, which is going to go from being a plus to a minus for the economy," he said.

Meanwhile, Japan's Cabinet Office early Thursday lowered its growth forecast for the current fiscal year for that country to 1.3 percent from a previous 2.0 percent, blaming rising crude oil and other commodities prices, as well as the higher yen and slackening U.S. demand for Japanese goods.

Stocks to Watch

It was Kevin Johnson who headed Microsoft's online business and led the company's failed bid for Yahoo. His departure will result in a reorganization of his unit which consists of both on line services and Windows software. CEO Steven Ballmer will head the Windows group with three other executives reporting to him. Johnson is leaving to run Juniper Networks. It should be an interesting analysts meeting.

Amazon.com shares moved higher in the after hours trading after reporting earnings that topped expectations. The company said it earned $158 million, compared to $78 million the year earlier. Amazon said it believes high fuel costs are a benefit to the company, as customers choose to shop online instead of driving to stores. The company, which has a free shipping program, said shipping costs rose 38 percent in the quarter.

Earnings Central

Oil's trend lower has whipped up buying in stocks and could do the same Wednesday, if a string of major blue chips' earnings don't disappoint before the opening bell.

AT&T,McDonald's, Boeing, Pepsico, Pfizer and ConocoPhillips all report early in the day. Anheuser-Busch, Sallie Mae, General Dynamics and Glaxo SmithKline also report. After the bell, Amazon.com reports.

Stocks are casting a wary eye on oil and, lacking any dramatic events, earnings news could steer the market.

Big earnings next week include tech, pharmaceuticals, industrials and of course, banks. Bank of America and Wachovia are the next banks to watch when they report Monday and Tuesday, and Apple is the next big tech name on Monday.

Citigroup's better-than-expected earnings report turned the tide ahead of the open.

Citigroup's earnings was expected to be the story of the day, and the mood going into it was already dampened by a string of weak earnings reports after Thursday's closing bell. Futures were weaker overnight but staged a dramatic turnaround into positive territory, as investors looked at the Citigroup numbers. The dollar also gained.

Some of the biggest names - Google, Microsoft , Merrill Lynch - all delivered shockers, either with disappointing numbers, forecasts or both. Google reported net of $1.25 billion, or $4.63 per share, below the $4.74 per share expected. Google said consumers are cautious about online spending patterns.

IBM was the exception, and even with a positive outlook, its stock took a hit.

Citigroup announced a smaller than anticipated writedown of $7.2 billion. The bank reported a loss of $0.54 per share, narrower than the expected $0.66 per share loss.

Other big names ahead of the opening include Honeywell and Schlumberger. Honeywell earnings rose 18 percent. Its per share profit of $0.96 per share beat analysts forecasts of $0.94 per share, and it raised its forecast for the year by $0.05 to a range of $3.75 to $3.85 per share.

Also encouraging to investors is news Friday morning of a $7.46 billion off for Barr Pharmaceuticals from Teva Pharmaceuticals.

There is no economic data of note, but stocks could be volatile around options expirations.

(Note to readers: the Look Ahead has been updated to reflect market developments)

Market Mayhem

Stocks were on a tear Thursday, with financials leading the charge once more. The Dow rose 207 or 1.8 percent to 11,446, and the S&P 500 was up 14 points or 1.2 percent to 1260.

The S&P financial sector leapt 6.5 percent. For the week so far, the group is up 10.2 percent. Traders said the group was propelled by better-than-expected earnings reports from Wells Fargo and J.P. Morgan but the heavily shorted sector also rose as traders moved positions after the SEC announced changes to the short selling rules.