Stocks traded quietly ahead of Friday's quadruple expiration of futures and options, as a more somber view of U.S. economic data is beginning to prevail.
The Dow Thursday finished up 24, and the S&P 500was up 1 at 1116, recovering from earlier losses after a jump in weekly jobless claims and a weak Philly Fed number weighed on the market. The euro rose 0.7 percent to $1.2378 after a successful Spanish bond offering and on confirmation from the EU that officials plan to release the results of bank stress tests in mid-July.
Treasurys firmed and gold closed at a record high of $1,248, as investors continued to hunt for safety. The 10-year note was yielding 3.1948 percent.
"It's a tough fight right now to convince people to be optimistic," said Deutsche Bank chief U.S. economist Joseph LaVorgna.
LaVorgna does not believe the weak run of data is signaling a double dip in the economy though the lack of job growth is a concern. "I don't think that's (double dip) the case. Right now, the psychology in the market is significantly worse than the data. I think the financial markets are trying to talk themsevles into a double dip. I think history suggests they have to talk themselves into a tizzy much longer than they're doing so far," he said, noting that the earnings story is still very positive for equities.
Investors Thursday also watched the day long Congressional testimony of BP CEO Tony Hayward, who was grilled about his company's failures in the construction and shut down of the oil-spewing well at the bottom of the Gulf of Mexico. BP stock slipped, and its bonds firmed.
What to Watch
Quadruple witching expiration, which is the quarterly expiration of futures and options, could influence stocks Friday. There are no expected releases of economic data until Tuesday, when existing home sales are reported. The Labor Department does release the statistical breakdown of regional and state unemployment data for May at 10 a.m..
Traders say this expiration Friday is likely to be on quiet side, as they watch the pivotal 1100 level on the S&P futures. "That's where things get interesting. That's where people start squaring positions to get a leg up," said Tim Smalls of Execution LLC. The futures were above that level late Thursday afternoon.
"You generally have big volume at the opening, very quiet volume throughout the day and big volume at the close," he said.
The futures expire on the opening. "We might expect a little bit of whippiness on expiration, but I think ultimately you're going to see 1100 be a little bit of a magnet," said Brian Stutland of Stutland Equities, LLC. "Eventually, I think if we can hold that 1080-1090 level, I think we're going to drift higher towards 1140."
The VIX, the CBOE's volatility index, slipped 0.8 percent to 25.05 Thursday. "July fourth usually represents a low point in the VIX on a seasonal basis for the year, so by holding that 1090 level, then drifting sideways to slightly higher would be consistent with historical behavior," said Stutland, who is a CNBC contributor. "That would bring us to the earnings cycle in July, and that would be the real test for the market."
While there is no major data until Tuesday, the markets are already looking ahead to the Fed's two-day meeting next week. The Fed is not expected to make any move on rates and any tweaking of its statement would be minor, economists said.
J.P. Morgan economist Michael Feroli Thursday said he changed his expectations on the timing of the Fed's first tightening to fourth quarter, 2011, from second quarter, 2011.
"We were always on the far end and the market caught up with us, and we now ran out a little further," he said. Feroli said the primary reason for the change in view on inflation. He also notes the Fed is concerned about the labor market and to some extent, the developments in Europe.
He said the Fed, of course, will not move on policy Wednesday, and its statement is likely to change only minimally. "I think it's going to be very similar to the last statement. You might get some kind of nod toward Europe and financial market jitters. I think it will be much a repeat of what the chairman said last week, which was Europe would be a modest drag on the economy.. Europe and the financial markets knock on."
In the Treasury market Thursday, rates fell on the weekly jobless claims, which rose to 472,000. Economists had expected 450,000 new claims. The Philly Fed was at 8, well below the level of 20 that was expected on the survey. But economists note that number is volatile and the new order component improved.
Ian Lyngen, senior Treasury strategist at CRT Capital, said bonds have been range bound and the data fed Thursday's move. "We spent the bulk of this week in a coiling pattern. We saw smaller ranges every day this week and we finally broken that pattern and it's broken towards lower yields. This is by no means conviction that the next stop is below 3 percent on the 10-year. It could be next step to a more constructive pattern," he said.
"The idea the Fed will be on hold well into 2011 has slowly become the market consensus," he said.
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