A big challenge for Friday's markets is the April employment report, but it could be the outcome of trade discussions by Trump administration officials in China that will have more impact on stocks.
The jobs report is expected to show 192,000 jobs were created in April, and the unemployment rate is expected to drop to 4 percent. Wage growth is expected at 0.2 percent, and anything higher than that could ramp up expectations for more inflation — and more Fed rate hikes.
But after the 8:30 a.m. report, the focus should be heavily on China.
"What happened this morning was word came back that China was stiff-arming the trade negotiators," said Jeffrey Saut, chief investment strategist at Raymond James. Saut said the sentiment around that seemed to have reversed by Thursday afternoon, and stocks rallied.
The stock market staged an impressive reversal, with the Dow erasing a near 400-point decline. The market had been pressured by speculation that the U.S. officials, led by Treasury Secretary Steven Mnuchin, would not have much success and there could be escalation of what looks to be the makings for a trade war.
Before the market succeeded in shaking off those concerns, both the and Dow had fallen below their widely watched 200-day moving averages. They recovered those levels, and the Dow closed up 5 at 23,930 and the S&P 500 fell 5 to 2,629, after hitting an intraday low of 2,594.
"People are still a little unsure why the market is so weak. We've had some good earnings," said Scott Redler, partner with T3Live.com. "There's a good argument for the bull and bear case, but I feel the bulls have a better case because of the quality of the earnings."
Besides the China trade concerns, Thursday's markets were also navigating a wave of new headlines about the Russia probe that has engulfed the White House.
Redler said when it appeared trade talks were ended for the day, rumors circulated that there would be some sort of joint announcement from China, and stocks took off at midday. At about 2:30 p.m., a separate headline from CNN on an expected joint statement also helped propel the market.
Saut said he remains convinced that the market saw its low on Feb. 9 when the S&P 500 touched 2,532.
But it could face another retest if the trade talks don't end with at least the appearance of a compromise.
"If we do get some kind of joint statement that both sides are working toward an agreement, that would be a cause for more relief. That could finally get a bit more momentum on the upside," said Redler. "We've been in a trend of setting lower highs. If we can break here, then perhaps the narrative changes to more of a bullish tone versus bearish."
Expectations for much progress were low going into the talks. Besides Mnuchin, White House top economic advisor Larry Kudlow was on the mission.
Both he and Mnuchin appear to have very different views than the other two officials who attended: White House trade officials Robert Lighthizer, the U.S. Trade Representative, and Peter Navarro, who has been a longtime critic of China. Lighthizer and Navarro are seen as far more protectionist in their approach, and if their view is dominant after the meetings, strategists said it could be negative for markets.
Saut said he expects the discussions with China to ultimately end with both sides backing down from threats to put tariffs on billions of dollars in goods.