The good news is that yesterday was only the first time in the last five sessions that the S&P 500 suffered a decline.  The bad news is that the decline wiped out the entirety of the gains registered over the prior four sessions and then some.  In total, the S&P 500 dropped 2.3% on Wednesday in a one-way market driven by economic slowdown (read: earnings) concerns.

Things started on a weak note following the disappointing ADP Employment report and then got worse following the weaker than expected ISM Index.  The latter checked in at 53.5 for May, which was down sharply from 60.4 in April and was punctuated by a material decline in the new orders index.  While the overall number is still indicative of expansion, the pace of change proved to be the upsetting factor.

The yield on the 10-year Treasury Note quickly dropped below 3.00% in the wake of the ISM data and held there the remainder of the day.  Prices are off a bit today, yet the yield sits at 2.98%.

As expected, most foreign markets traded lower in response to the drubbing on Wall Street.  The losses, however, were not as pronounced because, ironically, signs of relative calm in the S&P futures overnight helped cushion the blow.

The relative calm has persisted this morning.  The S&P futures are up three points and are trading slightly above fair value, suggesting the cash market will start the day slightly higher.

Strikingly, the futures market improved following initial claims data that left plenty to be desired on the labor front.  Specifically, initial claims for the week ending May 28 decreased 6,000 to 422,000 (Briefing.com consensus 413,000) while continuing claims for the week ending May 21 held basically flat at 3.711 mln (Briefing.com consensus 3.688 mln).

We suppose some solace was taken from the initial claims reading not being any worse than it was.  Our enthusiasm for the report is mitigated by the understanding that there were no special factors influencing the claims data and that readings above 400,000 are not generally consistent with strong labor growth.

Market participants will take stock of this claims data, but recognizing it has no bearing on tomorrow's nonfarm payrolls report, they are not apt to get too worked up by it as far as today's action is concerned.

What will register with participants is how the market responds to yesterday's selloff.  Will it recover nicely on a buy-the-dip trade or will it stage a rebound effort that ultimately fails?

There is a chance, too, that it simply languishes in a narrow range as weary (and wary) participants take to the sidelines ahead of the jobs report on Friday when EU, IMF and ECB inspectors are also expected to release a statement on their Greece findings.

On a related note, the euro has caught a nice bid following remarks from ECB President Trichet who touched on the prospect of creating a ministry of finance for the EU that could ensure greater fiscal oversight of the monetary bloc. 

Separately, retailers are reporting same-store sales for May that are mixed at best.

(Correction: the original post mistakenly indicated initial claims were better than the consensus estimate; the comment has been edited to remove that statement.)

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.