The stock market has places to go and it seems still that the Treasury market is going to dictate where it goes — for better or worse.
There isn’t a strong leaning in the equity futures market this morning coming off yesterday’s rebound effort, but that’s because there isn’t a strong leaning in the Treasury market either. The 10-yr note yield settled yesterday at 4.74%, it kissed 4.75% overnight, came back to 4.71%, and spiked to 4.77% following yet another solid initial jobless claims report. It has since slipped back to 4.74%.
Currently, the S&P 500 futures are down 13 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 34 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 97 points and are trading 0.3% below fair value.
The translation here is that the equity market isn’t going to see a follow-through effort on yesterday’s rebound — at least not at the open.
That understanding could embolden short sellers, which of course could also raise the potential for a short squeeze later in the day, particularly if Treasury yields rediscover their own rebound line.
The thinking now, though, is the same it has been. The solid reading for initial jobless claims, which are a leading indicator, is feeding the notion that the Fed is going to stay higher for longer and won’t be cutting rates anytime soon.
Briefly, initial jobless claims for the week ending September 30 increased by 2,000 to 207,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending September 23 decreased by 1,000 to 1.664 million.
The key takeaway from the report is the understanding that the low level of initial claims is associated not only with a tight labor market, but also an economy running at a good pace.
In other economic news, the trade deficit narrowed to $58.3 billion in August (Briefing.com consensus -$65.1 billion) from an upwardly revised -$64.7 billion (from -$65.0 billion) in July. The improvement was the result of exports being $4.1 billion more than July exports and imports being $2.3 billion less than July imports. Exports of crude oil and fuel oil accounted for nearly half of the increase in exports.
The key takeaway from the report is that the drop in imports in August, versus the increase in exports, will factor favorably as an input to Q3 GDP computations.
The market, however, doesn’t seem to be tolerating good economic news so well these days, because it desperately wants to see some relief on the interest rate horizon. That’s why it applauded a softish-looking ADP jobs number yesterday and recoiled today at the sight of encouraging growth data.
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Originally Posted October 5, 2023 – Oh, the places you (the stock market) will go
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