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On FOMC Watch
The stock market stood its ground for the most part Tuesday, unwilling to bow to early selling pressure, yet incapable of mounting a big move to the upside ahead of today's FOMC decision.
The FOMC directive is expected at 2:15 p.m. ET. On recent FOMC days, the market has shown a propensity to trade with a positive bias ahead of the decision.
As of this posting, the S&P futures are pointing to an opening gain of about 0.8%.
There are some reports this morning highlighting the likelihood of the Fed maintaining its stance that "...economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." The dollar is somewhat weaker this morning on that assumption.
The "extended period" phrase is the one the market will be looking for in today's directive. Presumably, if it remains in the directive, the dollar will weaken further as tightening expectations are pushed back.
That consideration should fuel some risk trades that lead to a pop in the major indices, but we would caution that trading is likely to be volatile following the FOMC announcement.
The great equalizer perhaps is that a view from the Fed that rates are likely to remain low for an extended period could soon be regarded as a worrisome portent for Friday's nonfarm payrolls report. At the least, it would have to be read as a tacit signal that the weak labor market is expected to remain a serious drag on economic activity.
On a related note, the ADP Employment Change report for October estimates that 203,000 private sector jobs were lost last month.
The ADP number was basically in line with the consensus estimate that called for a loss of 198,000 positions and was a modest improvement from September, which was revised to show a loss of 227,000 jobs versus an originally reported loss of 254,000 positions.
There wasn't much response to the ADP number given its proximity to the consensus estimate and considering the reading isn't all that different from the 175,000 decline in nonfarm payrolls economists expect to see in Friday's employment report.
The ISM Services report for October (consensus 51.5; prior 50.9) will be released at 10:00 ET.
Earnings news has been mostly supportive today as Dow component Kraft Foods (KFT), Time Warner (TWX), Hartford Financial Services (HIG) and Comcast (CMCSA) all exceeded consensus earnings estimates.
Arguably, politics is playing a role in the early futures strength, too, as reports note Senate Majority Leader Harry Reid indicated last night that health care reform legislation may not get done by the end of the year.
Republican candidates also unseated Democratic governors in Virginia and New Jersey, which is stirring the pot for political commentators who think that might make other Democrats nervous ahead of midterm elections next year about voting for a comprehensive health care reform bill.
This is all talk, but the market should soon render some political judgment of its own on these happenings. Watch the performance of the health care sector today to see if the market thinks the possibility of passing expensive and comprehensive health care reform by the end of the year took a hit last night.
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