Fixed On A Lower Open

At this fixed point in time, the stock market looks poised to start today’s session on a modestly lower note.

Currently, the S&P 500 futures are down 20 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 58 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 120 points and are trading 0.3% below fair value.

We are being deliberate with our word choice in use of the word “fixed,” because this stock market has not had any real fixation on how the market has opened in 2023. Rather, the fixation has been on how the market does after it opens, and most days, even when there has been a negative slant in the futures market before the open, the stock market has bounced back from any initial weakness.

The S&P 500 started the year at 3,839.50, it hit a high of 4,195.44 on February 2, and it closed yesterday at 4,164.00 after hitting 4,088.39 at its low. In other words, the stock market has been fixed on trading higher and yesterday was no different.

It digested the remarks from Fed Chair Powell in a roller-coaster fashion, but ultimately closed near its highs for the day after Microsoft (MSFT) helped ramp up the AI rally and buyers ramped up their buy-on-the-dip inclination when the S&P 500 slipped below 4,100.

Accordingly, to see the futures market signal a lower open doesn’t generate the same fear and loathing that it did last year.

It could at some point down the road, but at this fixed point, it can be explained away as a normal condition for a market that has gone a long way in a short amount of time, leaving it ripe for some profit-taking interest. 

The real constraint, we would argue, is one of valuation. At 18.5x forward twelve-month earnings, the S&P 500 is trading at a roughly 8% premium to its 10-yr historical average. The constraining factor is that earnings estimates are not fixed. They are dynamic, and while the stock market has been trending higher since the start of the year, earnings estimates have been trending lower.

This is not to say that stocks still can’t trade higher. They can. The point is that the path to further gains is unlikely to be as easy as the rebound effort in 2023 has been so far.

Shifting gears, President Biden laid out a path he thinks should be followed in his State of the Union address last night. Among other things, he called for Congress to pass a billionaire minimum tax, to quadruple the tax on corporate stock buybacks, and to raise the debt limit without conditions. He also made a case for more antitrust regulation of technology companies.

These proposals were consistent with previews of the speech heard yesterday when the stock market ended with a bullish bias, so we won’t claim that they are a basis for the negative disposition of the futures market this morning.

The earnings results since yesterday’s close really aren’t either. There were some good reports (and reactions) and some not-so-good reports (and reactions). 

Uber (UBER), Fortinet (FTNT), Enphase Energy (ENPH), and Under Armour (UAA) are some notable companies that have seen good reactions, whereas Chipotle Mexican Grill (CMG), Lumen Technologies (LMN), Capri Holdings (CPRI), and Jack Henry & Associates (JKHY) are some of the notable companies that have seen not-so-good reactions.

Call it mixed then in terms of the earnings impact on the futures market, which itself looks fixed on a negative start.

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Originally Posted February 8, 2023 – Fixed on a lower open