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Economic Data Should Help, But Will Stocks 'Sell in May?'

Markets could be in store for another dose of positive U.S. economic data Friday, as the Greek debt crisis seems contained for now.

New York Stock Exchange
Photo: Oliver Quillia for CNBC.co
New York Stock Exchange

Stocks Thursday rallied as it appeared Greece would get an agreement for a multi-year bailout from the European Union and IMF by next week. The Dow jumped 122 to 11166, and the S&P 500 was up 15 at 1206.

The key economic report Friday is first quarter GDP, released at 8:30 a.m., along with the employment cost index. Chicago purchasing manager's data is released at 9:45 a.m., and consumer sentiment is at 9:55 a.m. There are also some major earnings reports, including Chevron , Nasdaq, Simon Property, Allergan, Constellation Energy and DR Horton.

Markets will also be watching the progress of the financial regulatory reform legislation. Financial stocks jumped 2.5 percent Thursday. Energy stocks, meanwhile, were up just 0.1 percent, and the sector was a laggard despite some strong earnings gains. The oil spill in the Gulf of Mexico is being monitored for its impact on companies involved and the Louisiana coastline. British Petroleum shares fell sharply, as did rig operator Transocean , after BP said the damaged well was gushing five times more oil than originally thought.

US Economy

Pierpont Securities economist Stephen Stanley said he expects first quarter GDP of about 3 percent, below the 5.6 percent of fourth quarter.

"I think the data have been very encouraging over the last month or two," said Stanley. "It feels like we have good momentum on the consumer side. Chain stores sales have been good. Car sales have been good. I think the business side as well. Durable goods orders have been strong, ISM has been strong. I think we're building momentum."

Stanley expects GDP to accelerate in the second quarter. "Even though the headline (Q1) GDP number is slowing down quite a bit from quarter four, the part we like the most, domestic demand, is picking up," he said. Consumer spending was up 1.6 in the fourth quarter, and he expects it to be 3.4 percent in first quarter.

Sell in May?

"You're going to hear that a lot in the next couple of days," said John O'Donoghue of Cowen.

"There's the old axiom—sell in May and go away," said O'Donoghue, head of equities trading at Cowen. "I don't see a ton of upside from here and if anything, just more consolidation."

O'Donoghue said he thinks the near term top on the S&P 500 is about 1225. "I do think the market's fine. I'm not an uber bear," he adds.

Euro Trashed?

The euro stabilized Thursday on the news events around Greece. It was at about $1.3241 in New York trading.

Robert Sinche, chief strategist at Lily Pond Capital Management, said he thinks markets are ready to look past the Greek crisis for awhile.

"I think they push this to the background," he said. "I think there's a powerful young cyclical, recovery under way, and that's what we're seeing in a broad array of asset markets. Markets see this as a localized problem."

"You're seeing Brazil currency near its highs. You're seeing the Korean currency near its highs for the cycle.. You're seeing risk assets and risk currencies doing well. I think what we have is a battle between this vigorous, young economic cycle and structural problems in Europe, which are important in Europe. It's not clear to me that they are that important to the global economy," Sinche said.

Sinche said Europe too is showing signs of rebound after a weak first quarter that was affected by bad weather. He said the euro zone business climate index showed a large increase.

"It's showing a very strong cyclical environment. This index has regained 85 percent of its decline from the highs in '07 to the lows of '09," he said.

"What you're getting is signs of the global recovery helping the core of Europe, and what it comes down to is whether you believe that Greece is more like Enron or Thailand," he said.

"Is it the canary in the coal mine? Is it telling you there are other problems to come, or is the Greece problem really related to the fact that they have very little credibility for their budget reliability," he said.

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