The focus shifts back to emerging markets Thursday after the Federal Reserve on Wednesday announced a second tapering of its bond buying program, reaffirming that the days of easy money are coming to an end.
The Fed's move to trim another $10 billion from its once-$85 billion-a-month program was expected as a small step forward. But for emerging markets, adjusting to a world with less Fed liquidity has created pain—particularly in those with current account deficiencies, weak currencies and inflation.
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When the Fed statement was released at 2 p.m. ET, stocks were already lower on the day, responding to a reversal in emerging markets as traders worried that recent central bank moves would not be effective. The market then took another leg lower, with the S&P 500 falling 1 percent to 1,774 and the Dow down 1.2 percent to 15,738.
"There was a bit of chatter that they would potentially stop the [taper] process," said Barry Knapp, head of portfolio strategy at Barclays. But it was not a widely held view that the Fed would pause because of emerging market weakness, he added, and the equities market overreacted to the Fed news.
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"We're back in the mode where we have to pay attention to what's happening overnight because the stressed countries that ran big current account deficits are going to be under pressure," he said. "It's a positive that China's going to be closed for a week."
Overnight HSBC final PMI for China will be key after a report last week that showed manufacturing activity contracting spooked markets worldwide. China is closed starting Thursday, and official PMI is reported Friday.
China's growth fears fed into concerns about individual emerging markets including Turkey, Brazil and Argentina.
Traders are also watching U.S. data Thursday, including weekly jobless claims and fourth-quarter GDP at 8:30 a.m. ET. Economists are expecting GDP growth of 3.2 percent or better.
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Joseph LaVorgna, chief U.S. economist at Deutsche Bank, expects to see 4 percent growth in the fourth quarter, well above consensus but just below the third quarter's 4.1 percent.
"The economy looked pretty healthy in the second half, and the old habits of perpetual pessimism will die hard," he said. The first quarter may be another story, with bitter cold and snow potentially slowing construction and other economic activity.
"Weather considerations aside, the trend looks good," said LaVorgna. There is also pending home sales data Thursday at 10 a.m. ET.
Traders will be watching a high volume of earnings, from ExxonMobil, 3M, Royal Dutch Shell, Visa, Celgene, Colgate-Palmolive, Northrop Grumman, Pulte Group, Time Warner Cable, Beazer Homes, Viacom and dozens of others before the bell.
Earnings season was seen as a potential minefield for equities by traders expecting a correction, but it has been fairly positive, with earnings growth at about 9 percent so far, according to Thomson Reuters. Seventy-two percent of the S&P 500 companies that have reported came in above earnings estimates, and 68 percent beat revenue estimates, according to Thomson Reuters.
Knapp said he expects stocks to remain under pressure, though.
"When they [the Fed] reach the inflection point where they stop easing, the market corrects," he said. "I don't think it's a straight shot down. ... It usually takes a couple months for it to play out. I could see it go to around 1,700."
From a technical perspective, action in the S&P 500 could be signalling more downside.
"The longer we stay below 1,800, the more conviction sellers will have to break through the 100-day, which stands around 1,766, and then possibly break down to the 200-day, which we haven't visited since 2012," said Scott Redler of T3Live.com.
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"We're at an inflection point," said Redler, who follows the market's short-term technical moves. The 200-day moving average is 1,705.
"The market has come in about 4 percent off the highs, and traders had targeted 1,770," he said. "We saw a brief bounce off that Monday, and there was not much conviction behind it, which to me makes it seem the market is confused."
Redler noted the 1,770 level was also the low Wednesday.
"We basically danced around Monday's low and didn't have enough power to break below it, but it didn't seem the bulls had the ability to take a stand there—the market feels vulnerable," he said.
While stocks looked dicey to traders Wednesday, bulls in the bear market found reasons to be happy.
The 10-year Treasury moved to 2.67 percent, a level it last saw in November.
"What we're doing in the market is not about the Fed," said David Ader, CRT Capital's chief Treasury strategist. "I think this action is and continues to be largely about the submerging market activities."
There was also an outside day in the 10-year yield, he said, meaning that the yield was higher than the prior day's high and the low was lower than the prior day's low.
"And the close was lower than the prior day's low," Ader said. "You've extended the range up, and you've extended the range down, and the close is lower than the prior day's low. ... That's bullish, and we've had three of them and they were all high-volume days."
The move was about positioning in a market where there was a huge short position, he said, and not so much about a flight to safety.
Speaking of shorts, short covering helped fuel an almost 11 percent move in the March natural gas futures contract, which settled at $5.465 per million British thermal units.
"People were thinking the gas market matured, and this kind of price volatility wasn't going to happen," said Gene McGillian of Tradition Energy. "It doesn't appear to be the case."
The action was in the two front month contracts, he said.
"The weather over the past several weeks has spurred the rally," McGillian said, noting that the expiring February contract also soared. "That suggests there must be some player who has been caught,"
There was also a widening in the March-April spread, known as the widow-maker, he said.
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.