Resigned It Seems To Some Early Retracement

Coming off the extended holiday weekend, the stock market appears ready to ease into the new week of trading on a modestly lower note.

Currently, the S&P 500 futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 20 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 104 points and are trading 0.3% below fair value.

This move is nothing to write home about. It is part of a normal digestive phase following a big run for the market that has seen the S&P 500 increase in five consecutive weeks and the Nasdaq Composite increase in eight consecutive weeks. Naturally, that extended streak of success is triggering some expectations that the market is due for a cooling-off period.

A little bit of softness in the mega-cap stocks is the primary weight on the futures trade along with a wait-and-see mentality.

Market participants are waiting to see if the major indices are going to continue to defy expectations for a pullback and press higher. That type of resilience to selling efforts has been a driver of the extended winning streaks in that it has prompted short sellers to cover positions and has swayed sidelined investors to redeploy cash for fear of missing out on better inflation-adjusted returns.

The biggest drivers, though, have been the assumption that the Fed is done, or close to being done, raising rates and that the economy can avoid a hard landing. There was a good piece of economic news this morning in the form of the May Housing Starts and Building Permits Report. 

Total housing starts surged 21.7% month-over-month to a seasonally adjusted annual rate of 1.631 million (Briefing.com consensus 1.400 million) following a downwardly revised 1.340 million (from 1.401 million) in April. That is the strongest pace of starts since April 2022. Total building permits increased 5.2% month-over-month to a seasonally adjusted annual rate of 1.491 million (Briefing.com consensus 1.425 million) following a revision to 1.417 million (from 1.416 million) for April.

The key takeaway from the report is rooted in the monthly growth for single-unit permits (+4.8%) — a leading indicator — and single-unit starts (+18.5%), which is a good sign for a supply-challenged housing market overall and a seemingly good portent for homebuilders’ sales and earnings prospects.

Treasuries responded as you might expect to the strong report. The yield on the 2-yr note backed up to 4.74% from 4.69% and the yield on the 10-yr note jumped to 3.77% from 3.73%.

There wasn’t much change in the equity futures market, however, which looks resigned to price in some retracement at today’s open, attentive to stretched valuations for leadership stocks and the impending semiannual monetary policy report to Congress that Fed Chair Powell will provide on Wednesday and Thursday.

Other weekend news items drawing some added attention include the 35-minute meeting U.S. Secretary of State Blinken had with Chinese President Xi in Beijing, the People’s Bank of China cutting the one-year loan prime rate from 3.65% to 3.55% and the five-year loan prime rate from 4.30% to 4.20%, and the June NAHB Housing Market Index climbing to 55.0 from 50.0 in May.

The center of attention now, though, is the price action for the major indices.

Originally Posted June 20, 2023 – Resigned it seems to some early retracement