The European Central Bank, a corporate earnings deluge and the fallout from Wednesday night's presidential debate could all sway markets Thursday.
In their immediate analysis of the debate, market strategists generally said it helped Hillary Clinton maintain her lead over Donald Trump. Markets have already been pricing in a greater likelihood of a Clinton win and U.S. stock index futures were slightly higher near session highs after the debate.
Paul Hickey, co-founder of Bespoke, said many investors are cautious due to the big events facing the markets, but he thinks stocks could continue to move higher.
"I think the overall tone people are taking is you have the election, you have the Fed coming up in December and you have the earnings season kicking off. The attitude is: 'Why am I going to take a stand on going long here? There are too many unknowns. Why should I be overly aggressive.' Our view is we're going to have a more positive market performance this earnings season as analysts' tone this earnings season was so negative," he said.
Early morning earnings are expected Thursday from Travelers, Verizon, Union Pacific, Bank of NY Mellon,American Airlines Group, Walgreens Boots Alliance, Illinois Tool Works, Pulte Group, PPG, Dunkin Brands, Alliance Data, Snap-On, Nucor, Danaher and Fifth Third, among others.
Hickey said he has been watching the performance of HYG, the iShares iBoxx High Yield Corporate Bond ETF, which has been outperforming the S&P 500.
"I think it's an overall function of improved tone in credit markets … the high-yield market specifically. They usually trade close with each other. The time you really want to focus on it is when you see divergence in the data and that's what we've basically seen," he said. "When you see a divergence like that, you see it resolve itself and our view is that you'll see the equity markets catch up."
Stocks closed higher Wednesday, with the Dow up 50 at 18,202 and the S&P 500 up 4 at 2,144. Oil jumped more than 2.5 percent and energy shares were the best performers, up 1.4 percent.
The European Central Bank announces its rates decision at 7:45 a.m. EDT Thursday and ECB President Mario Draghi holds a news conference at 8:30 a.m. No action is expected but the markets is looking for clues as to whether the ECB asset purchase program will be extended beyond March, or whether the ECB will change the mix of the securities it is buying.
"We're obviously focused on the ECB as more of an event risk," said Aaron Kohli, interest rate strategist at BMO. "We're starting to see some momentum as rates turn toward a rally and really watching the front end and what it will price for the Fed in December. There's some technical patterns that suggest the two-year might be rallying, but right now the market is approaching a bigger decision point. Particularly as we get to November, the market will have to be setting up for a rate hike in December."
Kohli said the Treasury market was under pressure Wednesday as the $17.5 billion Saudi Arabian debt offering hit the market. "We had a big jump in yield. Then we came right back to where we started," he said. The 10-year yield reached 1.77 percent, then a low of 1.3 was back at 1.745 in late afternoon trading.
Hickey said stocks could react to the debate. After the last debate, stocks were higher the next day, but that was also after a tape revealing lewd comments by Republican Donald Trump became public. The broader market appears to favor a Hillary Clinton win, but stocks could get hit if it looks like the Democrats will gain control of Congress. Biotech and health care stocks have been pressured by the view that Clinton will win the White House.
"If Trump really has a similar performance to his last two debates, that's not going to surprise anybody. The polls are well in Clinton's favor," said Hickey. "If he has a sterling performance in the debate tonight, maybe that will benefit some of the biotech and health care stocks that are getting hit. That's the worry now, that it's going to be such a runaway at the top of the ticket that Republicans are going to lose the Senate and it seems unlikely — but there's fear — that the House could be under threat."
The fear is that if Democrats sweep, they will enact market-unfriendly tax plans and regulation. The market is comfortable with a split between a Democratic president and at least partially Republican controlled Congress since it would mean gridlock in Washington.
There are a few economic reports Thursday including initial claims and the Philadelphia Fed survey, both at 8:30 a.m. and the existing home sales at 10 a.m.
New York Fed president William Dudley speaks at 8:30 a.m. He makes welcoming remarks at the New York Fed workshop on the culture and behavior in the financial services industry.
At a dinner gathering Wednesday night, Dudley said, "If the economy stays on its current trajectory I think ... we'll see an interest rate hike later this year."