Back on Track

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Chief Market Analyst

The stock market made a good run Friday at extending its weekly winning streak to six weeks, but it came up just short. The S&P 500 closed the week down 0.3%. What was lost last week, however, will be found again at the start of today’s trading.

Currently, the S&P 500 futures are up 16 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 63 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 124 points and are trading 0.6% above fair value.

There isn’t a specific news catalyst to explain the bullish-minded view. The positive bias on Friday coupled with festive thoughts of seasonality are the likely causes, yet other explanations abound like the persistence of low nominal rates (and negative real rates), earnings optimism, and performance chasing.

There was some mostly pleasing economic news out of China over the weekend. October retail sales and industrial production were stronger than expected while fixed asset investment was just a smidgen shy of estimates.

Conversely, Japan’s preliminary Q3 GDP was weaker than expected, down 3.0% year-over-year against an expectation for a 0.8% decline. The disappointing report was seen by Japan’s economic minister as a basis for why Japan needs more policy support.

Tonight will feature a virtual meeting between President Biden and President Xi. Most reports imply that nothing material is expected to come out of the meeting, yet most reports also suggest it is an opportunity for both leaders to dial down the competitive tension between the two countries.

That would be a good thing, so we can’t dismiss that notion as something that is also aiding the futures market.

A stronger than expected Empire State Manufacturing Survey for November hasn’t hurt. That report showed an uptick to 30.9 ( consensus 19.8) from 19.8 in October. A number above 0.0 denotes expansion. The increase from October, then, suggest there was a month-over-month acceleration in manufacturing activity in the New York Fed region.

That news comes in front of President Biden signing the $1.0 trillion bipartisan infrastructure bill into law at 3:00 p.m. ET today.  A vote on the $1.75 trillion Build Back Better plan, however, is still on ice. There are reports that it could take place in the House sometime this week, but that it could then take many more weeks for the Senate to work through disagreements over the plan.

The added wrinkle is that Congress is going to need to address government funding and the debt ceiling by December 3 as well, which is something that is likely to overlap the Senate’s dealings with the Build Back Better plan.

There isn’t much corporate news driving things this morning. There were a few M&A deals. American Tower (AMT) is buying CoreSiteRealty (COR) for $170.00 per share in cash or roughly $10 billion, including debt. KKR and Global Infrastructure Partners are acquiring CyrusOne (CONE) for $90.50 per share in an all-cash transaction valued at approximately $15 billion.

Separately, Tesla (TSLA) is down 2.1% as Elon Musk is teasing the idea of selling more stock. 

Originally Posted on November 15, 2021 – Back on Track

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