The odds are slightly in favor of more selling on Thursday, given the depth of the weakness. Data from Biryani Associates finds there's a 55% probability of a down day for the S&P 500 after a decline of more than 2% in the previous session with the average loss running at about 20 basis points.
The big question for the rest of the week now is: Was the selling deep enough to price in what now seems likely to be a truly ugly nonfarm payrolls report on Friday, insulating traders somewhat through the end of this holiday-shortened week.
The expectations for Friday's report starting to coming down almost immediately. Examples include Standard & Poor's economists bringing their estimate down to a rise in nonfarm payrolls of 125,000 (vs. the pre-ADP consensus of 170,000), and High Frequency Economics putting the number at 75,000. Ouch.Thursday's economic data will provide more clues about the state of the flagging recovery. At 8:30 a.m. ET, Wall Street gets to parse initial claims for week ended May 28 (consensus 413,000, according to Briefing.com), as well as continuing claims for week ended May 21. Also providing more fodder for the debate about whether this patch of bad data is a blip related to the Japan earthquake in March or signs of a real slowdown will be factory orders for April. The consensus is expecting decline of 1%, but Briefing.com sees a drop of 2% when the number is released at 10:00 a.m. ET. High Frequency Economics Chief U.S. Economist Ian Shepherdson sides with Briefing.com, saying the steep drop in durable goods orders telegraphed the 2% tumble. Other data includes the revision of nonfarm productivity and labor costs for the first quarter at 8:30 a.m. ET, which isn't likely to move the needle much, and crude inventories for the week ended May 28 at 11:00 a.m. ET, where weak demand from the U.S. has already been anticipated.