There were reports on Friday that Iran would soon launch an attack on Israel. Those reports contributed to Friday’s sharp losses. It turned out that those reports were correct, and this morning the equity futures are… higher?
Currently, the S&P 500 futures are up 40 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 151 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are up 302 points and are trading 0.8% above fair value.
The positive disposition of the futures market seems to defy reason. Iran and Israel having a military altercation with each other is not a good thing. Nonetheless, the positive disposition of the futures market lends some insight into how the market thinks about these things.
It boils down to two thoughts really: (1) Iran’s drone/missile attack on Israel was suppressed and didn’t cause any real economic damage for Israel or the global economy and (2) there is a hope/belief that both sides have had their “flexing” moment and that the conflict does not evolve into a full-fledged war.
Israel for its part said it will “exact a price” from Iran after the weekend attack. Whatever that means remains to be seen, yet the market isn’t getting caught up in the threat so much as it is getting caught up in a sense of relief that Iran’s retaliatory fireworks proved to be a dud.
There are other relief factors at work, too.
First, Dow component Goldman Sachs (GS) delivered a blowout earnings report, comfortably surpassing consensus earnings estimates with the help of a resurgent investment banking business. Secondly, consumers delivered more spending activity on retail goods in February and March than was expected.
Total retail sales in March increased 0.7% month-over-month (Briefing.com consensus 0.4%) following an upwardly revised 0.9% (from 0.6%) in February. Excluding autos, retail sales surged 1.1% month-over-month (Briefing.com consensus 0.5%) following an upwardly revised 0.6% increase (from 0.3%) in February.
The key takeaway from the report is that the U.S. consumer, fortified by a strong job market, continued to spend freely in March in an act that will continue to support the soft landing/no landing outlook for the U.S. economy.
Market participants liked the implication of the report. The equity futures market padded its gains following the release, which overshadowed a weaker-than-expected New York Fed Empire State Manufacturing Survey for April.
The latter checked in at -14.3 (Briefing.com consensus -6.0) versus -20.9 in March. A number below 0.0 denotes a contraction in activity. Notably, the Prices Paid Index increased to 33.7 from 28.7.
The strong retail sales report, coupled with the prices paid component of the Empire State Manufacturing Survey, sent the Treasury market to new lows for the morning. The 2-yr note yield is up nine basis points to 4.97% and the 10-yr note yield is up 11 basis points to 4.61%.
Those moves haven’t upended the equity market in the early going, but they have the potential to come back and bite if they persist. For now, there is some relief and some short-covering activity underpinning the equity market.
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Originally Posted April 15, 2024 – Helped by a sense of relief
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