Caron also said the economic surprises aren't actually a surprise. "My view is essentially that the second quarter was going to rebound from the first quarter. The view has always been, and most people have this view, that the second half of the year is going to be stronger than the first half, that the third quarter would have some rebound," said Caron, MSIM fixed income portfolio strategist.
Bond yields were higher and the dollar firmer early Thursday, but both reversed as stocks sold off and oil slumped. West Texas Intermediate ended down 2.2 percent at $44.75 per barrel.
The Dow was down 77 at 18,517, and the S&P 500 fell 7 to 2,165. The Dow snapped a nine-day winning streak and a seven-day run to new highs.
"I think it really is that the market has done well. It pulled back and there's more and more talk of a potential Fed rate hike," said Quincy Krosby, market strategist at Prudential Financial.
"I think the market is on hold waiting to see what that Fed statement is going to say," she said.
While the Fed is not expected to act next Wednesday, intrigue has been building around its post-meeting statement and whatever nuances it may add or delete. The European Central Bank held off on taking action Thursday, but it is expected to provide more easing in September, while the Bank of England also held off last week but could cut rates in August. As a result, there are some expectations the Fed will not make any changes Wednesday ahead of new rounds of easing from abroad.
Meanwhile, earnings continue to surprise with some big positives. General Motors reported earnings more than doubled to $2.87 billion, and it made positive comments about its outlook. GM also said Europe improved.
"Once they mentioned Europe, that was a positive. So many investors and strategists still see Europe as without any demand whatsoever. That was a positive that there is a pickup in demand, not only in the U.S. but in Europe. That's the kind of thing the market wants to hear," Krosby said.
GE is expected to earn $0.46 per share on revenues of $31.78 billion, according to FactSet. Krosby said the industrial giant's report is key.
"We started to see the industrials participate in the rally, and we want to continue to see that," she said. "What GE is important for is, they're in virtually every global geographical area and they are in many business lines. So we listen to GE, and what they tell us will help reinforce whether the global economy is still stagnant or whether we're seeing demand picking up globally."
Besides GE, earnings are expected from Honeywell, American Airlines, Autoliv, Moody's, Stanley Black & Decker, SunTrust, Synchrony Financial, Textron, VF Corp and Vodafone.