There is not a lot of conviction in the equity futures trade this morning, partly because market participants are hesitant to get fully on board with buy-the-dip action knowing that it hasn’t been rewarded this month.
Currently, the S&P 500 futures are down nine points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 36 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 55 points and are trading 0.2% below fair value.
Sure, some stocks — like NVIDIA (NVDA) — have bounced following an extended period of weakness, but the indices have not found any buy-the-dip momentum in August. Entering today, the Russell 2000 is down 5.4% this month, the Nasdaq Composite is down 5.0%, the S&P Midcap 400 is down 3.7%, the S&P 500 is down 3.3%, and the Dow Jones Industrial Average is down 1.7%.
Those declines, however, have followed quite a hot streak of gains for the broader market, so the August pullback continues to be looked at as a normal period of consolidation during a seasonally weak period.
It is important to note, too, that the selling this month has been a low-volume affair, implying that that there hasn’t been a lot of conviction on the part of sellers. The key consideration is that there has been a lot of disinterest among buyers for various reasons that range from valuation concerns to interest rate angst to vacation plans.
During the August pullback, though, the market narrative has focused largely on China’s disappointing activity and rising market rates in the U.S. as proximate causes for the pullback. Both are part of today’s trading mix.
China reported a 0.1% year-over-year decline in July home prices, adding to a string of weak economic data; meanwhile, the 10-yr note yield is up one basis point to 4.23%, leaving it on the doorstep of challenging the high yield close of 4.25% last October.
Technical traders will be paying close attention to the Treasury market, and the same can be said for the stock market after the S&P 500 closed yesterday below its 50-day moving average (currently 4,449).
Some of the hesitation in the equity futures trade this morning can likely be attributed to a desire to wait and see how the cash market behaves around that important technical level. Will it quickly reclaim a posture above that mark or will it continue to slide?
In other words, will it pay to buy the dip or will it work to keep trimming positions?
Fortunately, housing starts and building permits were not trimmed in July. Total housing starts increased 3.9% month-over-month to a seasonally adjusted annual rate of 1.452 million units (Briefing.com consensus 1.446 million) and building permits increased 0.1% month-over-month to a seasonally adjusted annual rate of 1.442 million (Briefing.com consensus 1.460 million).
The key takeaway from the report is that the increase in starts and permits, albeit modest, was driven by single-family units, which are badly needed in a supply-constrained existing home market.
The July Industrial Production and Capacity Utilization Report will be released at 9:15 a.m. ET and then the FOMC Minutes for the July 25-26 meeting will be released at 2:00 p.m. ET.
On the earnings front, Target (TGT) and TJX Cos. (TJX) released their quarterly results. Both retailers topped earnings estimates and both stocks are trading higher in pre-market action. That is especially noteworthy in the case of Target, which lowered its FY24 earnings and comparable store sales guidance.
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Originally Posted August 16, 2023 – Buy-the-dip momentum missing in August
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