Weekly jobless claims could help drive Thursday's markets, which are still likely to be digesting what it means for the Fed to be on hold.
The stock market Wednesday slumped into the close after the Fed made it clear it has no plans for new easing as it winds down its quantitative easing program (QE2). The Fed also cut its growth forecast to 2.8 percent for 2011 and admitted the economy may be troubled by something other than just temporary factors, like Japanese supply chain disruptions.
Treasurys, at the same time, firmed, even though the Fed's statement and Fed Chairman Ben Bernanke's comments were not surprising.
The Dow lost 80 to 12,109, and the S&P 500 slid 8 to 1287. The 10-year was yielding 2.974 percent in the late afternoon.
"The Treasury market was never looking for anything more on QE.... Without the hint of pending additional policy, the equity market came off and we caught a little more of a bid after being lower," said Ian Lyngen, senior Treasury strategist at CRT Capital.
LPL Financial chief investment officer Burt White said Bernanke and the Fed did just what was expected. "He definitely thinks the second half is going to be marked with better growth and the soft spot we're living through here is transitory. We agree with that," said White.
Bernanke said the Fed does not have a "precise read on why this slower pace of growth is persisting." On policy, he made it clear more easing is unlikely because there are reduced deflation risks, compared to last summer when QE2 was first discussed.
QE2 is widely credited with pumping up risk assets, like stocks and commodities. Some analysts believe recent corrections in stocks and commodities are in part due to the end of QE2, which involved the Fed's purchase of $600 billion in Treasury securities.
What to Watch
Thursday's claims data has become increasingly important with every week that the number stays elevated above 400,000. Expectations are for 415,000 weekly jobless claims, about the same as last week.
"We think the jobless claims are going to be higher — 450,000," said White. " ...you're seeing escalating layoffs at state and local governments and you're starting to see talk of layoffs at some financial companies. You're starting to get some ripple through the business community."
Besides claims at 8:30, there are new home sales for May at 10 a.m. There are also a few earnings — Conagra , Discover , Lennar and Rite Aid report before the bell. Oracle , Accenture , H&R Block , Micron and Tibco report after the close. Yahoo holds its annual meeting at 11 a.m..
White said the next big focus for the market will be earnings. "I think that's the real key here. That's what the market is going to focus on. Earnings are going to be good, but guidance is going to be bad," he said.
That is one reason why White is in the camp that believes the market will face more turbulence this summer. "We think the next four to six weeks will be shaky," he said, adding he expects the market to revisit 1250 on the S&P 500, an important support level.
A major problem for the stock market is that earnings estimates are too high, he said. He notes that the expectation for S&P 500 earnings is about $106 during the next four quarters, and it's about $100 for calendar year 2011. "If you took all the S&P 500 companies and weighted it by the weight, multiply by their earnings and add all that stuff up... If it was one company, in 2011, based on what earnings did in the first quarter and what is expected for the rest of the year, it would be about $100," he said.
The $106 estimate for the next four quarters is too high by two to four percent, he said. "That has to be revised down, and if those estimates get revised down, the market is going to react to that. That being said, the market doesn't believe these numbers. That's why the market is trading at 12 times earnings," White said.
"We think the next four to six weeks are going to be pretty rocky, with guidance coming down and some other economic numbers weakening. There's still too much optimism out there," he said. "Once we get through earnings, and if the market is around 1250 (on the S&P), I think that's the time to get back in."
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