Traders are watching the slow drip of economic data for the next catalyst that could jolt the market out of its doldrums — in either direction.
Friday's data includes durable goods, at 8:30 a.m., and August new home sales, at 10 a.m. Fed Chairman Ben Bernanke also gives a lecture in Princeton at 4:30 p.m.
Thursday's data was a mixed bag, with a disappointing expansion of jobless claims and a slightly better than expected existing home sales report.
The Dow fell 76 points to 10,662, and the S&P 500 was down 8, or 0.8 percent to 1125, below the key 1130 level. Treasurys saw some selling, which pushed the 10-year yield slightly higher to 2.56 percent. Gold set another record, rising $4.10 to $1294.30 per troy ounce. The dollar rose against the euro, which was at $1.3317.
"I think the tricky dynamic here really surrounds Europe," said Barry Knapp, head of equities portfolio strategy at Barclay's Capital. Weaker business activity data for the euro zone and concerns about Ireland's economy and banks weighed on stocks early in the day.
Knapp pointed out that a batch of better European data had followed the weakening of the euro, but now it has changed course. "Europe could bear the brunt of the currency adjustments. The world is trying to devalue their currencies. The Japanese are intervening, England says they are restarting quantitative easing and the Fed says the burden is on the data to get better or they'll do quantitative easing. (QE) That leaves the ECB (European Central Bank) in a difficult spot," he said.
Stocks have traded in wishy-washy fashion since the Fed's Tuesday afternoon statement, in which it said it would consider more QE if needed. On Thursday, the market meandered before selling off into the afternoon.
"I love the fact they broke through 1130 on the S and P (Monday), but I was disappointed we didn't see any follow through," said Marty Cunningham of Esposito Securities.
"I'm worried about the new economic reports next week," said Cunningham. He said the market could be in for a rough time next week "without any help on the jobs front, or the GDP front." Weekly jobless claims are released Thursday and another look at second quarter GDP is reported on Thursday.
The big number for Friday's markets is durable goods, expected to drop 1 percent.
The July durable goods report showed the biggest decline in 18 months for manufacturing goods, excluding transportation equipment. The July headline number was 0.3 percent, but without transportation, bookings fell 3.8 percent. Durables was one in a stream of economic reports last month that fed concerns the economy could double dip. That worry has been fading as the data improved in September.
"It will be interesting to see durable goods orders for August. It will be interesting to see if these purchasing managers got it right, or were they just crazy. Purchasing managers orders were down sharply," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.
Rupkey said he expects improvement in new home sales. "All the data should be in the positive column. It's funny that bond yields aren't sticky down here. I think bond yields are relatively tight with regard to inflation or inflation expectations," he said. As for the Fed's Tuesday statement, "the Fed has gotten as much bang for the buck as they're going to get from that for now," he said.
"Everything is just a set up for the big number, which is payrolls...that's going to clear the air," he said. September non farm payrolls are reported Oct. 8.
Rupkey said he expects Fed speakers between now and Nov. 3 to drop hints on whether the Fed might move to quantitative easing at that meeting. He said he expects Bernanke to appear before Congress sometime in October, and that will be the session to watch for clues.
Bernanke's Princeton lecture is titled "Implications of the Financial Crisis for Economics," and the conference he is attending is co-sponsored by the Center for Economic Policy Studies and the Bendheim Center for Finance.
Traders are increasingly talking about the expected impact of corporate earnings reports on the stock market, as the third quarter winds down.
Knapp said the ratio of companies with negative pre-announcements is up sharply from last quarter. According to Thomson Reuters, he said the ratio of negative to positive announcements is 2.3 to one, while it was 1.1 last quarter. The long-term average is 2.1.
"It's a big change. Its not like earnings are going to be down. We just lost that rate of change," he said.Advanced Micro Devices late Thursday joined a list of tech companies warning on revenues this week.
"Another thing that's affecting people is the cold cruel reality of the outlook for the financial sector," Knapp said. Now that the industry has faced Basel III and regulatory reform, it still has issues.
"The outlook for earnings growth, asset growth, for margins all that stuff... the outlook for the financial sector is not all that sanguine. This sector is really going to be sensitive to the economic growth outlook," he said. The financial sector was down nearly 2 percent Thursday.
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