EmailThe S&P 500 rallied 1.0% on Friday following the January employment report. Yesterday, it gave back that gain and then some, falling 1.2% in a choreographed selloff that occurred following large losses in European markets that were linked to growing angst about political uncertainty in Spain and Italy.
Things have settled down somewhat this morning with markets in Europe licking yesterday's wounds, aided by some better-than-expected Services PMI readings.
The lack of follow-through selling in Europe has kept things in order for the most part in the US, which is poised to start the session on a higher note.
Currently, the S&P futures are trading 0.5% above fair value.
The quick turnaround is apt to stir thoughts that yesterday's broad-based retreat was little more than some overdue profit taking that was catalyzed by some convenient excuses emanating from Europe and the post-traumatic headline that the US government is going to be suing Standard & Poor's over its pre-crisis credit ratings.
The added recognition that oil prices are moving higher (+0.6% to $96.75/bbl), that the euro is up 0.1% against the dollar, and that the back end of the Treasury curve is getting hit pretty good (10-yr -13/32 at 2.01%) at the moment are developments supporting the aforementioned view.
To be sure, this is a market that has been conditioned to buy on dips. It will be interesting to watch today to see if the conditioned response is maintained or if the market ultimately succumbs to renewed selling pressure.
How the market closes, therefore, will be a lot more revealing than how it opens.
In the interim, participants will be digesting the ISM Services report for January (Briefing.com consensus 55.6; prior 56.1), which will be released at 10:00 a.m. ET, and another large batch of earnings news that features disappointing earnings guidance out of YUM Brands (YUM), in-line results from Kellogg (K) and Emerson (EMR), and positive surprises from the likes of BP (BP), Cardinal Health (CAH), Anadarko Petroleum (APC) and Automatic Data Processing (ADP).
