Market Insider: Thursday Look Ahead

Stocks should trade quietly Thursday ahead of the three-day holiday weekend.

Wednesday's activity was subdued, even after a minor sell off after the Fed downgraded its economic outlook yet again, in the release of its last meeting minutes mid-afternoon. The Dow finished up 47, at 7837, and the S&P 500 was up 9 at 825.

Retailers led the gainers, rising 3 percent on expectations they will report that March sales improved when they release monthly sales reports Thursday. In addition to chain store reports, weekly jobless claims, import prices and international trade are reported at 8:30 a.m.

From 'Fast Money':

"I expect the retailers to report generally in line to slightly better," said Jefferies retail analyst Dan Binder. "There is an Easter shift and I think sometimes Wall Street doesn't always get the shift right."

In the case of Wal-mart , he said its sales might fall short of analysts' expectations of 3 percent because shoppers may have pushed Easter spending to April. He does expect Wal-mart though to raise its forward guidance.

Costco , on the other hand, is not affected as much by Easter sales, and it could see a benefit from the extra Sunday shopping day in March this year, since Easter is in April.

There are already some tell tale bright spots. Hot Topic was trading higher after-the-bell Wednesday after it released its March sales. Its sales were 7.1 percent higher. Bed, Bath and Beyond shares were up more than 20 percent after it reported better-than-expected earnings on Tuesday.

Cowen and Co's John O'Donoghue, who heads the firm's equities trading desk, also said if there's a surprise in retailers' sales Thursday, he believes it would be to the upside. But otherwise, he doesn't expect to see much going on in the market, ahead of the Good Friday holiday.

O'Donoghue said he is looking ahead, instead, to earnings news next week. "I'm looking at earnings because if you think about this, everybody likes to talk about P/E. (price to earnings ratio) But where is the S&P trading vs the E? It's in the stratosphere," he said.

O'Donoghue said he continues to be bearish despite the recent rally. "I think the market should back off probably anywhere from five to 10 percent from these levels and probably bounce around. But I don't think we revisit the old lows of March 8 and 9," he said.

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The Fed release Thursday said the FOMC members saw downside risks to the economy at their March 17-18 meeting. The Fed said credit conditions remain weak, financial markets are fragile, and they cut GDP expectations for the second half of 2009. They also see rising unemployment, and the economy expanding slowly in 2010. Separately, Dallas Fed President Richard Fisher said he expects unemployment to hit 10 percent by year end.

David Ader, who heads rates strategy at RBS, said there were a few surprises in the Fed comments. For instance, the Fed pointed to weakness overseas impacting U.S. export growth. "The trend that has come into the market is this thing of 'green shoots,' using (Fed Chairman Ben) Bernanke's term of green shoots. that's not quite so evident. I had anticipated it would be sort of a beige book in its tone. It was a little more dovish," said Ader.

On Thursday, the Treasury market faces the last leg of the week's auction. $18 billion in 10-year notes will be auctioned, following a well-received $35 billion in three-year notes Wednesday.

Treasury traders have been pointing to the range that the 10-year yield has been locked in, between 2.5 and 3 percent. "This is a range where there's not much going on," said Ader. "I do not look for directionality as a result of that auction," he said.

The 10-year saw buyers Wednesday, which lowered its yield to 2.847 percent. The dollar meanwhile was slightly firmer against the euro and lower against the yen . The bond market closes early Thursday.

After the bell Wednesday, Bloomberg news reported that the Obama economic team, including Bernanke, Treasury Secretary Tim Geithner and FDIC chairwoman Sheila Bair, are expected to discuss banks' stress tests on Friday. Other news reports have noted that Treasury would like to delay the release of results until after the banks report first quarter earnings, which start next week.

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