Equity futures tilted lower

Your eyes don’t deceive you. Those are minus signs in front of the indications for the equity futures this morning.

Currently, the S&P 500 futures are down 10 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 43 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 71 points and are trading 0.2% below fair value.

One might also be rubbing their eyes, wondering if they are seeing things clearly, knowing that Treasury yields have continued to slide, and yet the equity futures are tilted lower. That’s not a vision problem.

Treasury yields are lower following some market-friendly CPI data for November out of the UK. Call that a good reason. Some less good reasons contributing to the drop in yields are demand worries surfacing from FedEx’s (FDX) revised FY24 revenue outlook, which calls for a low single-digit decline versus prior guidance of approximately flat, and geopolitical angst.

The latter has been heightened by a Bloomberg report that the U.S. and its allies are considering military strikes against Houthi rebels in Yemen and an NBC News report that Chinese President Xi told President Biden at their San Francisco meeting last month that China will reunify Taiwan with China, preferably peacefully, but that the timing of the reunification has not been determined.

The 2-yr note yield is down seven basis points to 4.38% and the 10-yr note yield is down four basis points to 3.88%.

Of course, one can’t gloss over the obvious reason the equity futures might also be lower, which is that the major indices have gone parabolic since late October and are apt to run into some profit-taking activity.

The surprise is that there still isn’t a lot of conviction in those selling efforts. The S&P 500 has soared 16.2% since its low on October 27 and the S&P futures this morning are just 0.2% below fair value despite the FedEx warning?

Shares of FDX, by the way, are indicated 11.2% lower in pre-market trading. That will have an adverse impact on the industrials sector along with the 3.6% decline in shares of UPS (UPS), which are falling in sympathy with FedEx. General Mills (GIS) is down 3.9%, too, after lowering its FY24 organic revenue growth outlook due to a slower volume recovery. RV maker Winnebago (WGO) is down 4.6% on a fiscal Q1 earnings miss that included a 160 basis points decline in its gross profit margin due to volume deleverage and higher discounts and allowances.

Micron (MU) will report its quarterly results after the close, but the latest batch of earnings news outside the tech sector didn’t measure up as one might have hoped — yet, the weakness in the equity futures market doesn’t even register as a blip relative to the scope of recent gains.

Old habits can be hard to break for a stock market that has settled into a winning trend, so the price action after the open will be monitored closely to see if there might be a change in trend. The November Existing Home Sales Report (Briefing.com consensus 3.80 million; prior 3.79 million) and the December Consumer Confidence Index (Briefing.com consensus 104.0; prior 102.0) at 10:00 a.m. ET could help in that determination.

Separately, it was reported earlier that the Q3 Current Account Balance was -$200.3 billion versus the revised Q2 deficit of $216.8 billion (from -$212.1 billion).

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Originally Posted December 20, 2023 – Equity futures tilted lower