Following a brief intermission on Monday, the equity market returned to form on Tuesday as the S&P 500 jumped 0.5% to a new multi-year high. The energy sector led the move while a number of defensive-oriented sectors -- telecom, health care, utilities, and consumer staples -- fell into line behind it.
It was an interesting trading dynamic that could be interpreted as more of a risk-off trade. That wasn't really the case, though, since there was a rotation within the stock market as opposed to a rotation out of the stock market.
In the same vein, the Treasury market remained on the defensive as the 10-year yield backed up to 2.00%. That was a clear sign that a risk-off mentality had not taken root.
Investor conviction has been held in check so far this morning on what is shaping up to be a busy day of news. Currently, the S&P futures are trading in-line with fair value, indicating the cash market is apt to start the session on a flattish note.
There was little reaction to an otherwise good ADP Employment Change report that showed 192,000 private sector jobs were added to payrolls in January. That was close to the Briefing.com consensus estimate of 175,000 and up slightly from a downwardly revised increase of 185,000 (from 215,000) in December.
This report will not alter expectations ahead of Friday's employment report from the Department of Labor. Nonfarm payrolls are expected to be up 180,000 while private sector payrolls are projected to be up 193,000.
On a less encouraging note, the advance Q4 GDP report showed the US economy contracted by 0.1% (Briefing.com consensus +1.0%) versus a 3.1% increase in the third quarter.
The headline number is an obvious disappointment, but the fallout has been mitigated somewhat by the understanding that the change in private inventories and government spending subtracted 1.27 percentage points and 1.33 percentage points, respectively, from the change in real GDP. Personal consumption expenditures added 1.52 percentage points while fixed investment added 1.19 percentage points.
Real final sales, which excludes the change in inventories, rose 1.1% versus 2.4% in Q3.
The Q4 GDP report is not strong, but it isn't as weak as it appears. Still, it is supportive of the Fed's easy-money policy that is expected to be reiterated again when the FOMC policy directive is released today at 2:15 p.m. ET.
That understanding, and the market's underlying belief that growth should be picking up as 2013 unfolds, has tempered the reaction to the backward-looking Q4 GDP report.
In other developments, earnings reporting continues full ahead. The majority of companies continue to beat while guidance is not above reproach.
Amazon.com (AMZN) and Boeing (BA) are today's headliners. The former company missed the Capital IQ consensus estimate by $0.06 and guided below consensus expectations for the first quarter. However, Amazon appeared to impress investors with its higher-than-expected operating income. Shares of AMZN are up 9% in premarket action.
For its part, Boeing beat the Capital IQ consensus estimate by eight cents and issued FY13 guidance below consensus estimates. BA is up 1.3% higher in premarket trading and will lend support to the Dow and S&P 500 when trading begins.