The stock market did it again on Tuesday, rolling over at the open on knee-jerk selling interest following news of a provocative missile launch over northern Japan by North Korea and then rallying back on a patented buy-the-dip effort.
There wasn't a specific news catalyst for the reversal. Rather, the quick rebound effort was the catalyst, as it triggered some short-covering activity and spurred a speculative long push in a thinly-traded market.
The final gains for the major indices were modest in scope, yet they masked some otherwise large point moves off session lows that had the Dow Jones Industrial Average, Nasdaq Composite, S&P 500, and Russell 2000 down 135, 57, 16, and 11 points, respectively.
Today's early tone is far more subdued and much more in-line with what one might expect in late August, a few days before the Labor Day weekend.
The S&P futures are up down two points, the Nasdaq 100 futures are down one point, and the Dow Jones Industrial Average futures are down 11 points, leaving them all trading in close proximity to fair value.
The futures, however, have been fading from overnight highs that saw the S&P futures up as many as nine points. That fade has been pretty steady since about 3:00 a.m. ET.
There is an early sense, then, that today could feature a meandering market that is marking time, waiting to see what might unfold on the (geo)political front and the economic front later in the week.
As a reminder, the Personal Income and Spending report for July will be released on Thursday and within it will be the PCE Price Index, which is the Fed's preferred inflation gauge. That will be followed by the Employment Situation report for August on Friday, as well as the ISM Index for August.
This morning's economic news has produced some favorable headline surprises.
The ADP Employment Change report for August showed an estimated 237,000 jobs were added to private-sector payrolls (Briefing.com consensus 180,000) on top of an upwardly revised 201,000 (from 178,000) for July. This report will feed positive expectations for the nonfarm payrolls number on Friday.
Meanwhile, the second estimate for second quarter GDP will feed a good economic narrative. It showed real GDP increased at an annual rate of 3.0% in the second quarter (Briefing.com consensus 2.7%) versus the advance estimate of 2.6%. The GDP Price Deflator was left unchanged at 1.0%, as expected.
The key takeaway from the report is that it was driven by a pickup in both consumer and business spending, which is typically a good mix for accelerating economic growth.
The upward revision stemmed from upward revisions to personal consumption expenditures (from 2.8% to 3.3%) and gross private domestic investment (from 2.0% to 3.6%), which was led by nonresidential fixed investment (from 5.2% to 6.9%). Government spending was revised down (from 0.7% to -0.3%).
There was basically no change in private inventories, so real final sales of domestic product checked in at 3.0%, which was the highest rate since the second quarter of 2015. The overall GDP growth rate was the first with a 3-handle on it since the first quarter of 2015.
Strikingly, the futures market slipped in the wake of the encouraging GDP report, as traders most likely saw it and the ADP report as evidence that the market might have to re-think its view of when the Fed might next elect to raise the fed funds rate.
According to the CME FedWatch Tool, the probability of the next rate hike doesn't surpass 50% until the June 2018 FOMC meeting, and even then it is thought to be a close call. A strong employment report on Friday, which is accented with stronger than expected average hourly earnings growth, will almost certainly act as an expedient for recalibrating rate-hike expectations.
There is a bit of that happening now, though, evidenced by the 2-yr note yield, which is up three basis points to 1.34%.