The S&P 500 came tantalizingly close to tagging the 5,000 level yesterday. It “failed” by 0.11 points, but still achieved a new record high in yesterday’s trade. This dalliance will continue today and, who knows, we may just see a 5-handle on the most closely-watched index in today’s session.
Currently, the S&P 500 futures are down four points and are trading fractionally below fair value, the Nasdaq 100 futures are down 27 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are up 24 points and are trading 0.1% above fair value.
There may not be much conviction in the equity futures trade, but that’s probably because there has been more conviction in the notion that the market is due for a pullback that is led by the mega-cap stocks and, you know what, that pullback hasn’t happened.
What we are implying is that market participants are waiting on the intraday price action to take their cues, cognizant that there has been a tremendous air of resilience (and outperformance) in most of the mega-cap stocks. That resilience has created its own pain trade for some participants unable to keep watching from the sidelines as these stocks and “the market” keep moving higher.
Everyone is waiting for a break in the action, but clearly there are enough participants who have kept playing the momentum trade and are intent to stay with the trend until it is no longer a friend.
That is why the intraday price action is paramount as a market driver. Admittedly, we know that sounds silly, because the market moves every day on price changes, but it matters more now given how far the market has come since its late-October lows and how much several of the mega-cap stocks have run already this year.
There are some other runners of note this morning, however. Dow component Walt Disney (DIS) is up 8% after its better-than-expected earnings report that was accompanied by news of a dividend increase, a new $3 billion share repurchase program, and a $1.5 billion investment in Epic Games.
That move pales in comparison to the one made by Arm Holdings (ARM), which is up 27% after its earnings report and Q1 guidance that was well above consensus estimates for revenue and earnings.
Wynn Resorts (WYNN), Mattel (MAT), Harley-Davidson (HOG), Tenet Healthcare (THC), and Ralph Lauren (RL) are all up nicely, too, in the wake of their earnings results, demonstrating that there is life out there beyond the mega-cap stocks.
There is certainly plenty of life still in the labor market. Initial jobless claims — a leading indicator — decreased by 9,000 to 218,000 (Briefing.com consensus 218,000) for the week ending February 3. Continuing jobless claims for the week ending January 27 decreased by 23,000 to 1.871 million.
The key takeaway from the report is the continuing low level of initial claims, which is a reflection of an economy not showing the stress of a big drop-off in demand.
The 2-yr note yield is up two basis points to 4.44% and the 10-yr note yield is up three basis points to 4.14%, little changed following the jobless claims data that didn’t register as a true surprise relative to the consensus estimate and the payrolls strength seen in the January employment report.
That employment report hastened a backup in yields that was rooted in a backup in rate-cut expectations. The latter has been a governing factor for the Treasury market of late, evidenced by the lack of response to some strong note auctions this week and a report today that China’s CPI was down 0.8% year-over-year in January, deflating at its fastest pace since late 2009.
A $25 billion 30-yr bond auction today will complete this week’s auction activity. The results will be announced at 1:00 p.m. ET.
The stock market of course closes at 4:00 p.m. ET, and everyone is waiting to see what that result will be as well. Might there be a 5-handle on the S&P 500 at the close? Maybe. Today’s price action will be the market’s guide.
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Originally Posted February 8, 2024 – Keeping a close eye on the price action (still)
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