Thursday's markets will navigate a series of economic reports—from consumer prices to jobless claims and builder sentiment—while traders worry the lowest bond yields in seven months could sting stocks.
The 10-year note yield fell Wednesday to 2.52 percent, a level not seen since late October, and was slightly higher at 2.54 percent in late afternoon trading. The move in bonds jolted stocks and fueled concerns that stronger growth will not materialize.
"It is shocking that we can expect to have a 3.5 to 4 percent growth rate in the second quarter of this year, and have a 2.5 yield on the 10-year. One of those is wrong. My guess is it would be the latter," said Art Hogan, chief market strategist at Wunderlich Securities.
"We got a double-barreled excuse to be a risk off day. We didn't get a bounce on the Russell and it kind of breaks down support. 1050 will be key. The jury is still out on whether a correction in the Nasdaq and Russell is preceding a correction in the S&P and the Dow," he said.
After ending at record highs Tuesday, the Dow fell 101 points Wednesday to 16,613 and the S lost eight points and closed at 1,888. The Russell, meanwhile, lost 1.6 percent closing at 1,103, and the Nasdaq ended on the psychological 4,100, off 29 points.
The 10-year followed the lead of European bonds, which saw yields decline as investors bet the European Central Bank would move ahead with stimulus.
The move lower in yields has been accompanied by short covering in the Treasury market, by investors who followed the conventional thinking that yields would rise as the Fed removed stimulus from the market. The Fed has been tapering back its bond-buying program by $10 billion a month, but traders say it also pressures the long end of the curve with its continuing purchases.
"Now, we're knocking on 2.50. It's interesting with each move lower in rates, people haven't changed their story. No one's really throwing in the towel enough," said George Goncalves, head of rate strategy at Nomura.
Goncalves said he thinks the market overshot when the 10-year yield rose to 3 percent at the end of last year. "The market got weird because of (the Fed) taper. People thought the end of QE (quantitative easing) was because the economy was improving. It's not. All these narratives are part of the process of putting to rest the idea that higher rates are not around the corner," he said. "Tapering is not the end of easy money."
Bonds were also nervous about economic data, including Tuesday's weaker-than-expected retail sales in the U.S. April retail sales rose just 0.1 percent, well below the 0.4 percent expected.
That makes the bundle of economic reports expected Thursday even more important as economists look for a spring back from weak winter growth.
There are weekly claims, CPI inflation data and the Empire State survey, at 8:30 a.m. Treasury TIC data is released at 9 a.m. and industrial production is at 9 a.m. the Philadelphia Fed and National Association of Home Builders survey are at 10 a.m.
Fed Chair Janet Yellen also speaks at the U.S. Chamber of Commerce on small businesses at 6:10 p.m.
"If you get a CPI that is higher-than-expected, that will be good news," Hogan said. PPI was expected to rise 0.2 percent but it jumped 0.5 percent Wednesday. "You have cost push inflation which is just the producer on the wholesale level, but if there's a sign its being passed through to the consumer, that's exactly what we need to see." Consumer prices are expected to rise 0.3 percent.
"If it comes in in line with what's expected, that's not good news. That just hits margins. We'd like to see better news on the economy. We were expecting a spring back from the winter freeze. We've got to see that," Hogan said.
—By CNBC's Patti Domm