EmailIt was a fitting end to last week as the S&P 500 rallied into the close to finish above 1500 and set another multi-year high. The week in its entirety was accented with a distinctly bullish bias that dismissed anything negative in favor of positive price action.
The S&P futures aren't showing a lot of strength at the moment, yet the vestiges of similar trading behavior are apparent. Dow component Caterpillar (CAT) is our guide in this respect.
A short time ago, Caterpillar announced an adjusted fourth quarter profit of $1.91 per share that was $0.19 ahead of the Capital IQ consensus estimate. It went on to say that it expects first quarter revenues to be significantly lower (~$2 bln) than the year ago period and issued wide-ranging FY13 EPS guidance ($7.00-9.00) to account for continued economic uncertainty.
Shares of CAT saw an initial dip, but are now trading 2.4% higher in premarket action, bolstered perhaps by the company's admission that it is looking for better growth in the second half of the year.
That has been the default belief for the market during this January rally as all disappointing news has been rationalized away on the basis that things will certainly look better six months down the road. Time will tell, but it is a thought that sells right now.
Today's Durable Orders report for December won't hurt that mindset. Durable orders jumped 4.6% (Briefing.com consensus +1.6%), led by a big gain in transportation equipment orders (+11.9%) and a sturdy 3.6% increase in new orders for primary metals.
Excluding transportation, durable orders rose 1.3% (Briefing.com consensus 0.0%). Nondefense capital goods orders excluding aircraft -- a proxy for business investment -- increased a more modest 0.2% on the heels of back-to-back 3.0% increases in October and November, respectively. Shipments for this category, which factors into GDP, were up 0.3%.
Overall, this was a good report. The Treasury market knew as much when the headlines hit the wires. The 10-year note sold off to its lows of the morning after the release, pushing the yield on the benchmark instrument to 2.00% and marking the highest print there since April.
Pending home sales data for December (Briefing.com consensus 0.0%; prior +1.7%) will be published at 10:00 a.m. ET.
The S&P futures are trading in-line with fair value, which suggests a flattish start for the cash market.
The dynamic between stock and bond market behavior will continue to be watched closely as a gauge of risk tolerance. So far in 2013, there is no mistaking the fact that a risk-on mentality has taken root.
