Thursday Look Ahead: Further Bumps for Stocks After Worst Day in 2 Months?

Stocks had their worst day in nearly two months Wednesday and could hit more bumps Thursday.

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Profit taking hit some of the market's best performers, shaking gains from technology, transports and financials. In the after hours session, high flier F5 Networks plummeted more than 20 percent after reportingweaker-than-expected revenues and forecast disapppointing second quarter revenues. (Get after-hours quotes here)The Dow was down just 12 points to 11,825. But the Nasdaq crumpled 1.5 percent to 2725, and the S&P 500 was down 1 percent to 1281, their worst one day performance since Nov. 23.

"It feels uglier than it is. We've become somewhat accustomed to intraday weakness really becoming overcome by the end of the day, either helped by programs or well bid conditions that keep the market in a trading range, or in a trading range with an upward bias," said Peter Kenny, managing director at Knight Equity Markets.

"I think right now where you've seen the biggest run ups, we're likely to see the biggest sell offs. Not that that's a vote against sectors. It's more a vote to ring the register," he said.

Some analysts have been expecting an earnings season pull back, and the question is whether it's beginning after a four-month run. Stocks like Google and Amazon were hit hard, and Apple, after stellar earnings, was trading lower by late afternoon.

Financial stocks were among the worst performers, with the S&P financial sector, down 2.2 percent. The group has had some high profile earnings disappointments, including from market favorite Goldman Sachs and Citigroup .

"We're clearly overbought. Peoples' expectation levels are very high," said Art Cashin, director of floor operations at UBS. Traders have said it's not enough to match earnings, but companies with rich valuations have to surpass expectations and provide solid outlooks.

Many traders were looking for better than expected news from the financial sector, which has seen double digit gains in the last couple of months.

"The market's looking a little weak here. It's the old sell the news routine," Cashin said. "We'll take a long look at initial claims tomorrow and the Philly Fed."

Kenny expects the market to see another wobbly day Thursday but not terribly dramatic selling. "I think it's going to be characterized by probably moderate volume, nothing exhaustive on the down side, no real capitulation," he said. Kenny said he did expect to see some money managers taking profits out of strong performers and that a more substantial sell off could be in the offing.

"I don't see 10 percent. I do see four percent, maybe five percent over a month, but I don't think it's going to be one of those sell offs that really scares people." said Kenny. "The momentum is too strong. There's too much to argue for equities running further." Those arguments include the sell off in muni bonds and the prospect for more selling in Treasurys.

Thursday's economic reports include weekly jobless claims at 8:30 a.m. Existing home sales, the Philadelphia Fed survey, and leading indicators are reported at 10 a.m. Earnings are expected from Morgan Stanley, Johnson Controls, Freeport-McMoRan, PNC Financial, Southwest Airlines, UnitedHealth and Union Pacific. Google reports after the closing bell.


Traders were also watching Chinese GDP and inflation data overnight, and Europe's sovereign woes should again be in the spotlight. The Wall Street Journal reported after Wednesday's close that Spain plans to inject billions of more in euros into its troubled savings banks.

The euro Wednesday gained another 0.6 percent against the dollar, now at a two month low. The euro was at 1.3472 and is up 1.4 percent against the dollar in the past two sessions.

Jens Nordvig, global head of G10 FX strategy at Nomura Americas, said most of the volatility in the currency market has been euro volatility and that the dollar may be close to bottoming against some currencies. "I think we're already consolidating..I think that at the right level in certain crosses we're already seeing a bottom forming. Dollar/yen could be an example of that, and even dollar/Canadian where we saw a multi-year low a couple of days ago. It's feasible we are forming a bottom right here," he said.

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