Is This Stock Correction the Start of Something Bigger?

Rattled stock investors may be seeing the start of a much anticipated market correction.

But whether this is the pullback analysts have expected may depend on the outcome of Greece's talks with private investors, who have until Thursday to accept a debt restructuring, and also on the strength of the U.S. jobs report Friday.

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Stocks had their worst and most volatile day of the year Tuesday, in a selloff that dragged down risk assets across the board. The Dow lost 203 points to 12,759, a 1.6 percent decline and the worst loss since December. The S&P fell 1.5 percent to 1,343, and the Russell 2000, which has been leading the market's decline, fell 2 percent to 787.

Markets were pressured by a combination of fears about the global economy, following China's forecast for slower growth Monday, and growing concern that the Greece situation will spiral out of control, triggering credit default swaps. European markets were also hit, with the German stock market down 3.4 percent and France down 3.6 percent. The U.S. dollar moved higher against a basket of currencies in a safety trade.

"It's one of those days when everything becomes highly correlated. I think it's primarily Greece," said Marc Chandler, chief currency strategist at Brown Brothers Harriman.

Greece's private investors will state by Thursday whether they accept its debt restructuring deal. If too few investors agree to the plan, traders are now worried it could trigger a credit event. Some market participants have played down any reaction form a Greek default.

"I keep hearing that, but does the market look like it thinks that way to you?" said Art Cashin, director of floor operations at UBS.

"The rumors that really got this (sell off) up and running was that they (Greece) was going to postpone the deadline from Thursday to Friday," said Cashin.

Chandler said he believes there's a good chance Greece could default and if so, the market reaction could be turbulent.

Cashin said it's yet unclear whether this week's selling is the start of the pull back, expected by analysts for several weeks. "You've got to wait and see what happens with Greece. It is taking the focus away from the election and the jobs report," he said.

Peter Boockvar, Miller Taback market strategist, said he doesn't believe the Greek situation will end in default this week. He said a positive outcome could trigger a bounce Friday, but the jobs report will also be a factor.

"Everything cyclical today got hammered," said Boockvar, adding the market internals have been looking weaker for a while. He said the expectation the market will have just a shallow 3 to 5 percent correction has yet to be seen.

"We'll have to see in the next couple of days," he said.

Analysts have been calling for a pullback after the Dow and other indices crossed above 2011 highs, and returned to multi year highs. The S&P is up more than 20 percent since October.

The February jobs report is expected Friday, and it is viewed as an important number that could set the tone for markets. There are high expectations for the report to a show a third month in a row of 200,000 plus nonfarm payrolls.

The ADP private sector payrolls report is released at 8:15 a.m. EST Wednesday and is expected to show 215,000 private sector jobs were added in February.

Other data includes productivity and costs at 8:30 a.m. and consumer credit at 3 p.m.

Also highly anticipated is the 1 p.m. announcement by Apple , expected to be the iPad 3. Earnings reported Wednesday include American Eagle, Brown Forman, Hovnanian and Ciena. H&R Block reports after the closing bell.

Investors will also be watching the outcome of the "Super Tuesday" Republican primaries in 10 states.

Follow Patti Domm on Twitter: @pattidomm

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