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Market Insider/Friday Look Ahead

Gloom and doom greets the February employment report Friday.

There's not much optimism around that report, which is released at 8:30 a.m. Estimates range from a slight increase in jobs to a slight decrease. Lehman expects job growth of 15,000, after January's 17,000 loss. Deutschebank sees a loss of 10,000 payrolls, and an unemployment level of 5.1 percent.

There was barely a bright spot in sight Thursday as the spiral of dysfunctional credit markets drove spreads wider and stocks sold off across the board. Even gold lost some luster, losing $11.20 per troy ounce or 1.1 percent to $975 per troy ounce. Oil, meanwhile, edged up $0.95 per barrel to a record $105.47. But look at the dollar - down 0.7 percent against the euro, hitting another record low, and down 1.3 percent against the yen.

Not surprising, a flight-to-quality trade in Treasurys drove the yield on the 10-year lower to 3.620 percent and the two-year fell to 1.562 percent, its lowest level in four years.

The S&P 500 lost 2.2 percent, or 39 points, to 1304, its lowest close since Sept. 11, 2006. The Dow was down 214 points or 1.8 percent to 12040, its lowest close since Jan. 22. It is now 15 percent below the Oct. 9, 2007 high. The Nasdaq lost 52 points or 2.3 percent, its lowest close since Sept. 22, 2006.

Traders have speculated if that jobs number is really bad, the Fed could take action early, ahead of its March 18 meeting. But if it's not all that bad, it could cause a relief bounce.

"From a technical view point, you're now testing the January lows, and we really have to test the intraday lows. It could be a couple of percent more," said Vince Farrell, managing director at Scotsman Capital. Of the jobs report, he says, "that's what could be that tests it."

Not a surprise, the financial sector was at the heart of Thursday's selling, losing 3.65 percent on the day. Fear spiked early in the day on news that Thornburg Mortgage and Carlyle Capital failed to meet margin calls. Traders saw that as a sign other mortgage investors would be forced to liquidate assets.

Merrill Lynch , meanwhile, said it was getting out of subprime mortgage lending, and late in the day, Citigroup said it would reduce its exposure to home loans by $45 billion.

Deutschebank chief U.S. economist Joe Lavorgna was on "Fast Money," and very concisely, summed up the market's dilemma. "Here's the thing, you're getting tremendous amount of fiscal stimulus. This package that we had passed in February, there will be more forthcoming, Eventually interest rates will work their magic," he said.

"But when you have a massive deleveraging of the financial markets, and you still can't solve the bond insurer problem, there's going to be more pain in financials. And financials will dictate what's going to work in the rest of the economy because if the financial sector is broken, monetary policy can't work like it's supposed to."

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.