Respecting the Trading Range

You may have heard that the stock market has been stuck in a tightly-traded range for some time now. The shape of things this morning makes it seem as if that trading range is going to be respected again today.

Currently, the S&P 500 futures are down 10 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 30 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down 90 points and are trading 0.3% below fair value.

The modestly negative leaning for the broader market follows yesterday’s modestly positive leaning for the broader market.

There are some news forces weighing on the futures trade:

• Dow component Home Depot (HD) posted disappointing fiscal Q1 sales and comp sales results and issued disappointing FY24 sales, comp sales, and EPS guidance
• China posted retail sales, industrial production, and fixed asset investment data for April that was all weaker than expected
• Treasury Secretary Yellen noted again that extraordinary measures used to pay the nation’s bills could be exhausted as early as June 1

The uncertainty surrounding the debt ceiling discussions continues to hang over the market. It will be discussed repeatedly today knowing that President Biden is expected to meet congressional leaders at 3:00 p.m. ET today to discuss the debt ceiling.

The timing of that meeting (i.e., before the market closes) could be important for today’s close, especially if reports of progress on an agreement — or ongoing partisan gridlock — are communicated before the close.

Some anxiousness over what might be heard today could act as a limiting factor for the stock market during today’s trade as buyers and sellers refrain from showing strong conviction in front of that meeting.

They aren’t showing strong conviction now, yet sellers have the edge at the moment. A mixed Retail Sales Report for April has given them some edge, too, as it wasn’t strong enough to mitigate worries about weakening consumer activity nor was it weak enough to make the Fed think it should entertain a rate cut anytime soon.

Total retail sales increased 0.4% month-over-month in April (Briefing.com consensus +0.7%) following an upwardly revised 0.7% decline (from -1.0%) in March. Excluding autos, retail sales were also up 0.4% month-over-month (Briefing.com consensus +0.3%) following an upwardly revised 0.5% decline (from -0.8%) in March.

Retail sales are not adjusted for inflation, so the key takeaway from the report is that total retail sales were up in April due primarily to price increases and not as much to increased demand.

The latter point notwithstanding, Treasury yields moved higher after the report as control sales, which also exclude sales from gas stations and building materials retailers, were up a more robust 0.7%.

The 2-yr note yield, at 3.99% before the release, is up to 4.03%, and the 10-yr note yield, at 3.49% before the release, is up to 3.53%.

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Originally Posted May 16, 2023 – Respecting the trading range