The rebound in stocks could continue for the time being, but some analysts say it would not be surprising to see the market trip up soon.
Stocks have been on the mend since late last week, and as of Wednesday staged their best three-day performance since August. For the and the Dow, it was the first three-day win of the year, and for the S&P it was the first time since 2011 it was up three days in a row with gains of 1 percent or more.
Stock futures were higher Thursday as oil rallied.
"I'm a little watchful to see how we continue from here. What a lot of people are saying is it's just a bear market rally. It's a countertrend rally," said Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence. "We went 44 months without a correction of 10 percent or more. When we went 30 months or longer, the average decline was more like 20 percent. ... If we only get down 14 percent I think we got off easy this time. I would not be surprised to see us go up to around the 1,950 area on the S&P 500 and then retrace some steps, and then maybe establish an even lower low but stay within the correction zone of 10 to 20 percent."
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The S&P 500 bounced 1.6 percent Wednesday to 1,926, as oil jumped more than 5 percent on more reports about a preliminary accord among some major oil producing nations to freeze production.
"Attitudes are changing. We did believe this was just a correction, not a crisis. I still think there's more downside. We're still frothy here, unless they're lowering their Fed expectations," said Jack Ablin, CIO of BMO Private Bank. "I don't care if the Fed tightens. I think the important message would be the Fed goes to the market and says 'We're not going to be your baby sitter anymore.'"
The Fed did release minutes of its last meeting Wednesday afternoon and it signaled that its members see risks increasing. According to the minutes, most U.S. central bank officials still were looking to raise rates and even discussed whether a rate hike could be appropriate in January. After a discussion, they said tighter financial conditions could be the equivalent of further increases.
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Meanwhile, economists have been shaving their expectations for Fed rate hikes. Bank of America Wednesday cut back on the number of rate increases it expects from the Fed this year from three to two, and Wells Fargo said it only now anticipates one hike.
The Bank of America economists also said they see a 25 percent chance of a recession, while the market is pricing in a 50 percent chance. Stocks reacted to recession fears during last week's sell-off but were much calmer on Wednesday, even as analysts say they expect more selling.
"Maybe I'm cheap, but I would like to see the market 10 percent below where we are so I can start buying. We have not jumped in. We're still holding cash. There was good news on industrial production today. This was data that came in better than expected," said Ablin.
Stovall said he does not expect major losses, but said the market could head to the 20 percent decline that would signal bear market territory.
"Even if we do fall into a bear market mode, I do think it would be no more than a baby bear market," said Stovall. "If we went down to the 1,565 level, which was the closing high of 2007, then I think that would sort of confirm that we are in a secular bull market and this is a cyclical bear within the secular bull market."
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There are some important retailer earnings Thursday, including Wal-Mart before the bell and Nordstrom after the close. Earnings are also expected from Discovery Communications, Entergy, Cabela's, Starwood Hotels, SodaStream, PG&E, and Dish Networks in the morning. Applied Materials. Six Flags. ConEd, Ambac, and Boston Beer report in the afternoon.
Economic data Thursday includes weekly jobless claims and the Philadelphia Fed survey, both at 8:30 a.m. ET. Leading indicators are released at 10 a.m. Traders are also watching Chinese inflation data overnight.
The Energy Information Administration reports natural gas inventories at 10:30 a.m., and oil inventory data are expected at 11 a.m.