There was enough negative news around on Thursday to cause a new wave of worry about Friday's jobs report.
Traders say it was jitters about the November employment report that took stocks lower into the close even though they had mostly traded quietly throughout the day. The Dow finished the day down 86 at 10,366 and the S&P 500 was off 9 at 1099. Commodities were also lower, but the dollar held steady at lower levels.
"You had people thinking about tomorrow's jobs number and they were just flattening out positions," said Todd Leone of Cowen, just after Thursday's closing bell.
The VIX, the Chicago Board of Options Exchange volatility index, moved 6.3 percent higher to 22.50, as stocks moved lower ahead of the jobs report. Options on the VIX traded on the heaviest volume ever Thursday, according to the CBOE.
Disappointing chain stores sales could have been enough to set a negative tone for the day. Retailers released individual November sales reports, and instead of the expected rise of 2.1 percent, they showed an overall decline of 0.5 percent, according to Thomson Reuters.
The big worry though was ISM services data, which slipped to a weaker than expected 48.7, an indication the service sector contracted last month.
Traders said another factor in the late afternoon sell off could have originated in the financial sector. Bank of America's big $19 billion secondary offering after the closing bell was oversubscribed, but that pending issue seemed to prompt profit taking in financial stocks ahead of the close. Financials were the worst performers, down 2 percent on the day.
Sandler O'Neill analyst Jeff Harte said it's good news that Bank of America will be able to repay the government's TARP program, and also positive that there was such strong interest in the offering. "Investor concerns have primarily centered on government control and government intervention at Bank of America," he said. "If you look across their businesses, they've got a lot of really good franchises and their capital really, I think, was fine."
"What it does is it gets the government out of the picture which is what the markets wanted to see," Harte said on "Fast Money."
Other major corporate stories included the long anticipated announcement from General Electric and Comcast that they would form a joint venture around NBC Universal. As a result of the deal, Comcast would be the majority owner of the entertainment company, which is also the parent of CNBC. Comcast, which has long been interested in a major content deal, saw its stock move higher.
Jobs Jobs Jobs
A relative bright spot Thursday was the weekly jobless claims number, which fell to the lowest level since September, 2008. The number declined to 457,000, its fifth consecutive weekly drop.
But the report was eclipsed by the ISM report, which raised concerns about service sector jobs. BNP Paribas cut its jobs forecast as a result of that report, and now expects a decline of 160,000 non farm payrolls in the November report.
Economists expect November's decline in non farm payrolls to come in at about 125,000, nd unemployment is expected to hold steady at 10.2 percent. The jobs report is released at 8:30 a.m. October factory orders are reported at 10 a.m.
Every employment report in this recession has been important, but markets pros say there is a heightened tension around this one as investors weigh each piece of data for signs that the recovery is still on track.
"At the end of the day, we're all kind of sitting there saying that everything hinges on the sustainability of the recovery, and the sustainability of the recovery hinges on jobs," said Bill Stone, chief investment strategist at PNC Wealth Management. "We don't have to have positive jobs, this time because we're not going to get it but everyone wants to see that it's still getting less bad."
He said PNC expects job losses of 150,000 for November. "Jobs, retail sales and housing. That's really the trifecta that's the market moving stuff," said Stone.
"I think everybody would like to shut this year down and go home. I think people are happy with how kind the market has been so far and would like it to hold in and get to a new year," he said.
Tension in Treasurys
RBS Treasury strategist Bill O'Donnell said the Treasury market has not just been nervous this week about Friday's jobs number, but also about next week's $74 billion in auctions of the 3-year, 10-year and 30-year bond. "I think people are doing the right thing and that is realizing we have to cheapen up the market to get the supply done in quiet conditions," he said.
O'Donnell conducts a survey of investors ahead of the monthly jobs report and his findings this week showed 56 percent would do nothing with their positions if the jobs number is worse than expected and the market sells off. Another 39 percent said they would be sellers.
Markets watched Fed Chairman Ben Bernanke defend the Fed and himself in confirmation hearings before the Senate Banking committee Thursday and they also watched comments out of the White House on the jobs report. During a news briefing, White House spokesman Robert Gibbs said the unemployment rate might "tick upward" Friday.
That sent a chill into the bond market, but Gibbs later explained that he had not actually seen the data.
"Basically the bond market.. and bond yields, are not far from where they were before these guys spoke. The market was on its back foot and stayed that way all day even with the late day swoon in stocks," O'Donnell said.
A news wire story reporting rumors that Japan was considering the sale of a big chunk of Treasury bonds got trading desks buzzing but many dismissed it. They pointed to a rival story that speculated Japan was considering intervention to stop the yen's rise against the dollar, a move that would make more sense and contradicted the first rumor.
What Else to Watch
Philadelphia Fed President Charles Plosser speaks on policy lessons at a Philly Fed forum at 10 a.m. St. Louis Fed President James Bullard appears at the same forum for a discussion on monetary and fiscal policy at 1:15 p.m.
— Questions? Comments? marketinsider@cnbc.