By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks on Thursday closed with weekly losses as investors weighed Europe's return to the headlines against positive weekly claims data ahead of Friday's nonfarm payrolls report for March.
"Every indication is tomorrow's job report is going to be strong, and consumer spending has been strong," said Adrian Day, president of Adrian Day Asset Management in Annapolis, Md.
Yet, "in Europe, we've got a lot more turmoil coming," Day added of the case for some trepidation, illustrated by a decline in Spanish bond prices, raising the nation's borrowing costs.
Off 1.2% from last Friday's close, the Dow Jones Industrial Average (DJI) on Thursday declined 14.61 points, or 0.1%, at 13,060.1.
The S&P 500 Index (SPX) fell nearly 1 point to 1,398.08, or less than 0.1%, with the consumer-discretionary sector faring best and defensive sectors doing the worst among its major industry groups. The S&P 500 posted a weekly drop of 0.7%.
The Nasdaq Composite Index (RIXF) added 12.41, or 0.4%, points to 3,080.50, leaving it down 0.4% for the week.
For every two shares advancing, almost four fell on the New York Stock Exchange, where more than 719 million shares traded. Composite volume neared 3.3 billion.
The U.S. stock market is closed on Friday.
In economic news, the Labor Department reported claims for unemployment benefits dropped by 6,000 to 357,000 last week. The more stable four-week average declined to 361,750 from 366,000.
"Since last August or September, we've had the best six-month stretch we've seen in the job market in about six years," said Phil Orlando, chief equity-market strategist at Federated Investors.
Friday's nonfarm payrolls report from the Labor Department is projected to show an increase of 210,000, according to economists polled by MarketWatch.
"We think the number is going to be fine," said Orlando at Federated, which is forecasting a rise of 225,000 in Friday's report.
Target Corp. (>> Target Corporation) and department-store operator Macy's Inc. (M) were among those reporting better-than-expected monthly results.
"We think the jobs market continues to strengthen; you're getting sales data from individual stores today, and it looks like companies are blowing out March, on top of a much-stronger-than-expected February, so the consumer appears to be in pretty good shape," said Orlando.
Bed Bath & Beyond Inc. (>> Bed Bath & Beyond Inc.) rose 8.5% a day after the retailer reported a more profitable fourth quarter than Wall Street had anticipated.
Constellation Brands Inc. (>> Constellation Brands, Inc.) fell 12% after the wine maker projected earnings for its current fiscal year below analysts' estimates.
Given the S&P 500's 12% advance in the first quarter, the market was "absolutely" in need of a pause, and concerns about Europe, and in particular Spain's escalated borrowing costs, provided a minor catalyst, according to Orlando.
"There are lots of good reasons that we had a rally in the first quarter. Europe got off the front pages, the U.S. economy is moving along, and the Fed is going to be easing forever, and the market got a little bit complacent," said Day of Adrian Day Asset Management.
"Suddenly, [Federal Reserve Chairman Ben] Bernanke said no QE3 [third round of quantitative easing] coming, and Spain is back on the front pages, and now everyone is saying everything is not going as well as we thought, let's just take what we've got while we've got it," said Day of events in recent days, which had the major indexes down for the first week of the second quarter.
But any pullback is more likely to be in the 3% to 5% range, in Orlando's view. "I don't think it'll be a 20% to 30% correction. We're up almost 33% from the October bottom, and much of that rally was achieved without the participation of hedge funds and retail investors."
"Retail investors are scared to death 2008 is around the corner and they'd lose everything," Orlando said. "Hedge funds are out of the market because they think the world is coming to an end. The hedges are now realizing they missed out on one of the greatest rallies, so any minor pullback has been met with hedge-fund buying."
Retail investors remain sidelined, but would like to begin returning to equities later in the year, the strategist believes.