Stock Market's Defensive Line Takes a Hit

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Defensive sectors that led the market higher this year sold off Wednesday and traders will be watching to see if it continues for a second day, potentially signaling a broader decline.

Thursday is also the busiest day of the earnings season with reports from Exxon Mobil, UPS, Colgate-Palmolive, Dow Chemical, Bristol-Myers Squibb, 3M, Amazon and Starbucks, as well as dozens of other S&P 500 companies.

Disappointing earnings news has already stung plenty of big name stocks, and on Wednesday, telecom giant AT&T and consumer staples favorite Procter and Gamble were among the losers.

Stocks finished mixed Wednesday with the Dow down 43 points at 14,676, and the S&P 500 barely higher at 1578. the Nasdaq was also less than a point higher at 3269. The worst performing sectors were telecom, down nearly 3 percent, and consumer staples, then health care, both down 1.7 percent.

(Read More: Dow Snaps 3-Day Rally; Telecoms Log Worst Day Since August 2011)

"Whether the overall market was going up or down, defensives went up. But not today. We know why — AT&T in telecom blew things up, P&G in staples, and Amgen had some bad news to report," said Jeff Kleintop, chief market strategist at LPL Financial. "For so long, everything was going great for these sectors." AT&T and P&G were both down more than five percent, and Amgen fell nearly 7 percent.

Year-to-date, the S&P health-care sector is up nearly 19 percent and the consumer-staples sector is up about 17 percent. "Today, there seems to be some sensitivity to this news…the market is beginning to respond in some ways to negative data points in ways that they hadn't all year," Kleintop said. These sectors are also more inclined to pay dividends and have been safe havens for investors worried about the broader market.

He said it seems some reallocation was taking place since the best performers Wednesday were among the year's laggards, but investors being scared out of defensives might also be inclined to just return to cash positions. Materials stocks rose 1.5 percent in Wednesday's session, but for the year, they are up just 3.4 percent. Energy stocks rose 1.2 percent, and are up 7.2 percent for the year.

(Read More: Gasoline Prices Likely to Fall More)

"Everybody hates the defensives today…even utilities," said Kleintop. "As soon as they saw a disappointment, they were quick to exit. What that could mean is we have a lot of weak holders here in the market."

Kleintop, like many others, had been expecting a bigger selloff for stocks, but so far buyers have helped hold the market up through pullbacks, including the latest.

"This market has been much more durable than I thought it would be, but I think we're still going to get a bit of a slide here. In each of the last three years, spring has been a time for selling. not just 'sell in May, go away,' but we saw the economic picture deteriorate," said Kleintop. "We're seeing the same thing this time." But Kleintop said the difference this time involves the Fed. In prior years, the Fed was close to winding down easing programs. This time, it is not, since the Fed left its quantitative easing, or asset-purchase program open ended.

As for economic reports Thursday, weekly jobless claims are reported at 8:30 a.m. ET. There is also an auction of $29 billion 7-year notes at 1 p.m. ET.

(Read More: Earnings Season Mixed as European Hurdles Remain)

Before-the-bell earnings include Altria, AstraZeneca, ConocoPhillips, Unilever, Biogen Idec, Boston Scientific, Bunge, Diamond Offshore, Hershey, Harley-Davidson, Noble Energy, Occidental Petroleum, Mean Johnson Nutrition, Time Warner Cable, Rayonier, Raytheon, Safeway, Southwest Air, United Continental, Ball, Bemis, Pulte Group, KKR, Jet Blue, NY Times, Cabela's and Dunkin Brands.

Besides Amazon and Starbucks, Chubb, Taubman Centers, Coinstar, PerkinElmer, KLA-Tencor, Altera, Baidu and Expedia report after the closing bell.