Weekly jobless claims and retailers' monthly sales reports combine to challenge stocks Thursday and will likely paint a picture of a consumer still very much under pressure.
Investors will also be watching for follow through from Cisco's after-the-bell earnings, which beat analysts' expectations both on the bottom line and top line. Cisco shares were slightly weaker after it reported it earned $0.31 per share on revenues of $8.54 billion. Cisco also forecast a double digit decline in current quarter revenues but suggested it sees signs of stabilization.
The dollar is also a major focus, as the Bank of England and European Central Bank hold rate meetings ahead of the New York open.
Wednesday's action illustrated once more that the stock market is resilient in the face of disappointing news and growing expectations it will soon succumb to a significant sell off. The Dow finished down 40 points, at 9280, and the S&P 500 held above the 1000 level for a third day, finishing at 1002, down 3 points on the day. ISM non manufacturing data and ADP's employment report were both disappointing data points that weighed on stocks.
"People have been buying the pull back story since early July, and the market has defied everybody. It's way overbought. It's very vulnerable. But the market does whatever it needs to do to embarrass the most number of people," said Art Cashin, director of floor operations at UBS.
Retailers are expected to report monthly sales that declined an average 5 percent in July, according to Thomson Reuters. By category, teen apparel stores are expected to be the worst performers, down 10.9 percent. Department stores' sales are expected to decline by 9.1 percent, while discount stores are seen down 6.2 percent. Many of these reports are released ahead of the opening bell.
Weekly jobless claims data is reported at 8:30 a.m. and is expected to come in at 580,000.
ADP's private sector payroll report Wednesday said the private sector lost 371,000 jobs, slightly more than the 350,000 expected. ISM services data, meanwhile, showed a greater decline to 46.4 in July, from 47 in June. The dividing line between growth and contraction is 50, and the services sector data declined while manufacturing data showed surprising gains earlier in the week. Stocks took an initial hit from the ADP report Wednesday but moved to the day's lows after the ISM data.
As stocks slid lower, bonds weakened. Oil fell on inventory data but finished the day higher, riding up on a dip in the dollar.
"This really is all about the dollar," said Cashin. "If you watched today when the dollar came off its low, stocks sold off. Then when it started to go back down, it revisited the low. Oil came back. Gold came back. For awhile, the stock market started to come back and then it stopped."
Cashin said the behavior of financial markets in tandem with the dollar has sparked speculation that the weakening dollar in the current low rate environment is taking the yen's place in a new type of carry trade. In the carry trade, investors used yen to fund investments in riskier assets, like commodities.
"They're following it (the dollar) like a dog on a tether," said Cashin. "...The feeling among some people watching that action is that people may be arbing the dollar the same way they did with the yen."
The dollar was slightly weaker against the euro, finishing at $1.4415 per euro. Against the yen, the dollar slipped 0.3 percent. Treasurys were under selling pressure Wednesday. The yield on the 10-year rose to 3.764 percent.
Marc Chandler, senior currency strategist at Brown Brothers Harriman, said the dollar is currently locked in a very tight trading range against the euro of $1.4350 to $1.4450. "It's a one-cent range, and I'm not sure we're going to break out of it until Friday when we get jobs," said Chandler. Friday's July employment report is expected to show non farm payroll losses of about 320,000 and an unemployment rate of 9.7 percent.
Chandler does not expect rate moves from either the ECB or Bank of England. "The ECB, when they don't do anything, they talk a lot about it. They are unlikely to do anything but the press conference is likely to say they're past the worst," he said.
The U.K., which has had more favorable housing and ISM data lately, is unlikely to take rate action or say much at all. The Bank of England could say it is pausing its quantitative easing program.
Before the bell, Comcast, El Paso, Thomson Reuters, Nasdaq OMX, Unilever, Williams Cos and Sirius XM report earnings.
CBS, Beazer Homes, Affiliated Computer, Millipore, VeriSign and CSC report after the bell.