Emanuel said once the Dow reaches 20,000, that could be a sticking point. The Dow crossed above 19,000 for the first time on Nov. 22, but traders have been waiting for it to cross above 20,000 for the past three weeks.
"By virtue of the concept of a watched pot seldom boils, if it does boil, there's going to be information on whether crossing 20,000 is met with a buy or a sell. Our inclination is I think it could be met with some resistance," he said.
Stocks have gained sharply since the election, on optimism about President-elect Donald Trump's plans to cut taxes and stimulate the economy with a spending program. Stocks even turned in a positive Santa rally performance, which is seen as a good omen for the market. The S&P 500 was up 0.3 percent for the period encompassing the final five trading days of 2016 and the first two of 2017.
Emanuel said he would not be surprised to see a sell-off at some point because of the high valuations. Some analysts believe it could be around the time of the presidential inauguration Jan. 20.
"In our view, at 19-time earnings, we think it's fully priced in now," said Emanuel. He said the market has been expecting a shallow pullback, but it could be more serious.
"We think it could be deeper than the conventional wisdom is because of this newfound optimism and belief that [the Trump program's are] generating growth that is going to cushion the downside," Emanuel said.
Economists do not expect much contribution from the tax cuts or fiscal spending programs until later in 2017 or 2018.
Emanuel said the S&P 500 could test its 200-day moving average — 2,139, more than 100 points below its current level. "Is a test of the 200-day moving average possible in the next couple of weeks? Absolutely. Is it a buying opportunity? Absolutely," he said.
On Thursday, ADP payrolls data is released at 8:15 a.m. ET. Economists expect 170,000 private sector payrolls, just below the 178,000 consensus for total December nonfarm payrolls, expected on Friday, according to Thomson Reuters.
Jobless claims are released at 8:30 a.m. ET and economists expect a slight decline to 260,000 from 265,000. Markit services PMI is released at 9:45 a.m. and ISM nonmanufacturing data is released at 10 a.m.
The Fed released the minutes of its last meeting Wednesday, and the bond market edged higher, with yields falling. The minutes did acknowledge that the Fed discussed the election's outcome and that its officials are uncertain about the impact on the economy of the economic stimulus programs and tax cuts.
"The response to Trump provided the Fed enough cover to move forward with the process of normalization," said Ian Lyngen, rates strategist at BMO. The Fed hiked rates at its December meeting for the second time in 10 years, and it was expected to do so well before the election.
Lyngen said the Fed also noted that the stronger dollar could be a downside risk for the economy and that slower global growth could be a risk. "There are clear worries about the secondary impact of what a tighter monetary policy is going to do," he said.
San Francisco Fed John Williams is expected to appear on CNBC Thursday at 1 p.m.
Earnings expected Thursday include morning reports from Monsanto, Walgreens Boots Alliance, Constellation Brands and RPM International. Ruby Tuesday and PriceSmart report after the closing bell.
Crude closed higher with West Texas Intermediate futures for February at $53.26 per barrel, up 1.8 percent. Oil inched slightly higher in late trading, after API reported a larger-than-expected drawdown in stocks, and gasoline futures gave up some gains on a bigger-than-expected build in gasoline supply.
The government's inventory data on oil, gasoline and natural gas is expected Thursday morning.