Stocks could continue to run Thursday unless the market is again scorched by higher oil prices.
The stock market defied Wednesday's big 3.8 percent jump in crude. The initial move up took the steam out of an early rally, but the market shook it off and the Dow closed with a 186-point gain. The S&P was up 21 to finish at 1284.
"It's the market against oil," said Art Cashin, director of floor operations for UBS. "Given what's happened, the market's going to watch and see what goes on with oil overnight. Oil will play a big part, along with economics" in Thursday's market.
Encouraging to traders was a 2 percent gain by financial stocks. Those shares wilted against the rise in oil initially but recaptured gains, a move viewed as a positive because financials and energy are usually counter trades. Traders are also looking for any signs that the group has bottomed. The S&P energy sector was up 5.6 percent.
Oil rose $4.58 to $126.77 per barrel. The dollar was up 0.6 percent against the euro.
The first look at second quarter GDP, the employment cost index, and weekly jobless claims are expected Thursday at 8:30 a.m. The Chicago purchasing managers survey is released at 9:45 a.m., and natural gas inventories are reported at 10:35 a.m.
Treasury Secretary Hank Paulson speaks on the economy at 1 p.m. in Washington. But first, we'll be watching CNBC senior economic correspondent Steve Liesman at 10 a.m. as he conducts a roundtable with the President's top economic advisors - Keith Hennessey, Jum Nussle and Ed Lazear.
Thursday's big economic number is second quarter GDP. Economists expect it to come in at 2.3 percent, but some of that gain is a product of stimulus rebate checks, and third and fourth quarter expectations are not that high. Some economists, in fact, see the fourth quarter as slightly negative.
"I think it's (Q2) going to be weaker than consensus for sure, " said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. His estimate for Q2 is 1.5 percent.
Steve Wieting of Citigroup though expects the number to surpass the consensus. "We're at 3 percent. I think if you look at the quarter, it's pretty good. The consumption pace, while not robust, was strong than the first quarter," he said. "The tax rebates played a role very clearly and will as well in the third quarter."
Wieting said trade added 1.6 percent. "Gross exports have added a good deal. They've been strong, but in addition to that we have an outright drop in unit imports ... It's contributed a good deal to the upside." Wieting says he expects growth to trail off and be softer in the second half. He expects the third quarter will be a number starting with a 1 as will fourth quarter GDP.
LaVorgna also expects a weaker second half. "I think a lot depends on what's going to happen after the tax rebate phase," said LaVorgna. "Regardless of what we print tomorrow, I don't think it's going to do anything to change the second half. The second half is going to be weaker than the first half." He said it will also be important to look at the revisions.
"The economy was ok when the credit crisis struck ... What happened was the consumer entered the downturn with a lot of leverage just like the financials. What happened is you have this crisis and the economy isn't able to deal with it like it might have," he said. LaVorgna said lending standards for consumers could get even tighter. "It's going to affect us over the long term," and the Fed, as a result, could "be on hold for a long time."
Companies that report earnings Thursday include ExxonMobil, Aetna, Altria, Kellogg, MasterCard, Motorola, Unilever and Goodyear. After the bell, Chesapeake Energy and KLA-Tencor report.