U.S. stocks closed near the flatline on Thursday as investors looked ahead to a key employment report.
"I think a large part of it is a good jobless claims number, which certainly gives more weight to tomorrow's jobs report," said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank.
The Dow Jones industrial average closed about 10 points lower, with Wal-Mart and American Express contributing the most losses. The S&P 500 closed just above the flatline, with materials leading advancers and health care the top decliner. The Nasdaq composite dropped 0.17 percent, as the iShares Nasdaq Biotechnology ETF (IBB) fell more than 2 percent.
The three major indexes had traded further below the flatline earlier in the session, with the Dow falling 118.06 points at session lows.
SPX intraday chartSource: FactSet
The Labor Department is scheduled to release its September jobs report on Friday, with economists polled by Reuters expecting the U.S. economy to have added 175,000 jobs and unemployment holding steady at 4.9 percent.
"The market is processing the likelihood of a Fed rate hike. If you look at the yield curve, it's higher. I think investors looking for yield are reconsidering some of their holdings," said Kim Forrest, senior equity analyst at Fort Pitt Capital.
"We expect jobs growth to continue in health care, tech and finance," said Andrew Chamberlain, chief economist at Glassdoor, adding he expects the U.S. economy to have added 176,000 jobs last month. "The labor market is very strong. This is pretty unusual heading into an election." "Such low unemployment numbers are talking some of the most pessimistic talking points off the table."
The jobs report will come on the back of upbeat U.S. data released Wednesday, including the strongest print on the ISM non-manufacturing index for the year. On Thursday, weekly jobless claims fell to 249,000.
"A weak Jobs Report on Friday would erase any of the positive sentiment gained with yesterday's strong number," said Jeremy Klein, chief market strategist at FBN Securities.
"Using ADP's estimate of Private Payrolls as a guide, employers apparently added +158K workers in September albeit the government's official release could differ greatly. While the FOMC would prefer a bigger boost to hiring, such a print would clear the hurdle necessary to add restrictive measures for only the second time in a decade given that the Core PCE has risen to its most elevated point in twenty-three months," he said.
Investors and traders have been keeping a close eye on economic data as they gauge the likelihood of the U.S. Federal Reserve raising interest rates later this year.
"The jobless claims were pretty good, and that reinforces the case for the Fed to raise interest rates," said Adrian Day, CEO of Adrian Day Asset Management. "I can't see them raising rates in November, but I do think they will go in December."
Maris Ogg, president at Tower Bridge Advisors, said regarding the jobs report: "In the great scheme of things, it's not that important. We've gotten to such a low level of unemployment that you're going to need something big to bring back more people into the workforce."
"What's going to be important is earnings. You've got pretty easy comparisons from last year, when oil was plummeting and fear was rampant," she said.
Earnings season kicks off next week, when Alcoa releases its quarterly results.
"Right now, the blended S&P 500 3Q 2016 vs. 3Q 2015 expected EPS growth rate is -1.20%, an expected deceleration from last earnings season when 2Q 2016 earnings grew by +2.0%. This is wrong," Nick Raich, CEO of The Earnings Scout, said in a note to clients. "Our research indicates a high likelihood 3Q 2016 year-over-year growth will be superior to 2Q 2016. Take that to the bank too."
Explaining the positive momentum that came into the stock market in late-morning trade, three sources who spoke with CNBC cited an unconfirmed report that European Central Bank Vice President Vitor Constancio refuted reports from earlier this week that the central bank tapering its quantitative easing program. The ECB did not immediately respond to a CNBC request for comment.
U.S. Treasury yields rose following the release of better-than-expected weekly jobless claims data. The two-year note yield traded at 0.86 percent, while the benchmark 10-year yield rose to 1.74 percent.
Overseas, European equities fell slightly, with the pan-European Stoxx 600 index falling 0.4 percent.
The S&P 500 rose 1.04 points, or 0.05 percent, to end at 2,160.77, with materials leading seven sectors higher and health care the top decliner.
The Nasdaq fell 9.17 points, or 0.17 percent, to close at 5,306.85.
About four stocks declined for every three advancers at the New York Stock Exchange, with an exchange volume of 805.09 million and a composite volume of 3.363 billion at the close.
Gold futures for December delivery fell $15.60 to settle at $1,253 per ounce.
On tap this week:
*Planner subject to change.
Earnings: Helen of Troy, Ruby Tuesday
8:30 a.m.: Employment report
10 a.m.: Wholesale trade
10:30 a.m.: Federal Reserve Vice Chairman Stanley Fischer speaks on the economy and financial regulation
12:45 p.m.: Cleveland Fed President Loretta Mester speaks on Fed communications
3 p.m.: Consumer credit
3:40 p.m.: San Francisco Senior Vice President Mary Daly speaks on the U.S. economic outlook and the role of education in supporting the American dream
4 p.m.: Federal Reserve Governor Lael Brainard speaks on blockchain technology