The stock market was on track for a losing week last week, but everything changed in that respect following the release of the December Employment Situation Report. That report set off a big rally effort, predicated on the hope that the economy will achieve a “soft landing” and that the Fed won’t raise rates much further before pausing its tightening effort.
The former hope manifested itself in the outperformance of the cyclical sectors, as well as the market’s most beaten-up growth stocks, whereas the latter hope was on full display in the 2-yr note yield, which plunged 18 basis points to 4.27%.
There has been some carryover hope this morning, evidenced by a positive bias in the equity futures market along with gains in crude oil futures (+3.2% to $76.16/bbl) and copper futures (+2.2% to $3.99/lb.), which are also being pushed by reopening hopes for China after it removed all border restrictions, according to The Wall Street Journal, in another distancing from its zero-COVID policy.
Currently, the S&P 500 futures are up 16 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 64 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 93 points and are trading 0.3% above fair value.
Other supportive influences this morning include a spate of M&A deals in the small-cap biotech space being struck at some hefty premiums, continued rebound activity in the mega-cap stocks, and brokerage upgrades for Visa (V), Mastercard (MA), Alibaba (BABA), and Oracle (ORCL).
Some retailers have provided guidance updates.
Macy’s (M) is down 4.0% after cautioning that its Q4 revenues are likely to be at the low-end to mid-point of its prior guidance of $8.161-8.401 bln and lululemon athletica (LULU) is down 9.7% after narrowing its Q4 EPS guidance to a range ($4.22-4.27) that falls below the current consensus estimate and warning that it expects its gross margin to decline 90-110 basis points versus prior guidance for an increase of 10-20 basis points.
On a better note, both Abercrombie & Fitch (ANF) and American Eagle (AEO) raised their Q4 revenue guidance. They are up 4.3% and 5.3%, respectively.
There are also some political headlines drawing interest, namely that Kevin McCarthy (R-CA) was elected Speaker of the House on the 15th ballot and Brazil suffering an attack on its Congress, Supreme Court, and presidential palace over the weekend by supporters of former President Bolsonaro.
With the election of the Speaker, the U.S. Congress can now get on with its business, which many pundits think will translate to legislative gridlock for at least the next two years given the divisions in the Republican Party and the divisions between the Republican-controlled House of Representatives and the Democrat-controlled Senate.
Like the saying goes, “Time will tell.”
What can be told now is that the stock market should start today’s session on a higher note, casting an anxious eye toward the release of the December Consumer Price Index on Thursday and the start of the fourth quarter earnings reporting period on Friday.
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Originally Posted January 9, 2023 – Market has its hopes up
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