Crude oil and consumer sentiment: Here's what could drive the markets on Friday

Following a session of record highs for the S&P 500 and Nasdaq Composite, which turned in gains despite a plunge in crude oil prices, Dennis Davitt of Harvest Volatility Management breaks down three key market themes for investors heading into the week's final trading day.

1. Crude oil

Crude oil prices plunged more than 5 percent in Thursday trading, below $49 per barrel for its biggest daily drop in three weeks, as OPEC's decision to extend output cuts through next March disappointed investors' expectations.

"With the big sell-off in crude oil we saw on Thursday, and the corresponding sell-off in the energy stocks, it's going to be really important to see if that sell-off follows through," Davitt said Thursday on CNBC's "Trading Nation."

Falling crude oil prices dragged energy-related stocks down with them; the XLE, an ETF that tracks energy stocks, fell by nearly 2 percent.

"If the energy stocks can hold their own over the next two days, that's going to bode well for the entire overall equity market," he said.

2. Consumer sentiment

Monthly Surveys of Consumers data, a broad measurement of consumer sentiment published by the University of Michigan, is due out Friday at 10 a.m. ET.

"It'll be interesting to see how retail stocks react to this consumer sentiment number. If they hold their own, it's going to be a true indication of how the consumer is feeling in the market today," Davitt said.

The survey's consumer sentiment index and index of consumer expectations are both expected to show month-over-month gains, while its current economic conditions reading is expected to remain unchanged. The report's reading in April was 97.0, and the projected figure for this month is 97.7.

3. European bonds

Davitt is closely monitoring the relationship between German government bond yields and Greek yields. He notes that they've begun to converge, as Greek yields fall substantially, while German yields rise moderately.

"If this continues to collapse, I'm then going to figure out if it's more confidence in Greece … or if the German economy is actually starting to overheat," he said.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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