The S&P futures are signaling a negative start for the cash market as they are down five points and trading 0.2% below fair value.
There might be a tendency to attribute the weakness to Snap's (SNAP) disappointing first quarter report (and first report as a public company), which has the stock down 22% in pre-market action.
There is one thing in particular that is wrong about such an assertion: Snap doesn't have the size in terms of market cap to exert such influence on the broader market.
The weakness in Snap is predominately stock-specific, although we will concede that it has probably shed some light for others on the matter of stock valuations being stretched in many instances and the fallout that can occur when bad things happen.
Hence, with several of the major indices having hit record highs in recent weeks in a less-than-inspiring fashion, some profit taking is in the general mix of things.
At the same time, the political circus playing in Washington is also contributing to the profit-taking activity as the media is drawing lines to the possibility of tax reform not happening.
It's not the first time such lines have been drawn, which is why it bears repeating that several major indices just hit record highs in recent weeks. Again, though, with valuation concerns simmering below the surface, the notion that tax reform might not happen has offered a convenient excuse to take some profits at this time.
The disappointing earnings report from retailer Macy's (M) has been another factor weighing on sentiment this morning. Macy's missed expectations with its top and bottom-line results and reported a 5.2% decline in comparable sales on an owned basis. Shares of M are down 11% in pre-market action.
Fellow retailer Kohl's (KSS) actually surpassed analysts' average earnings expectation by a comfortable margin, yet it also experienced a decline in sales and comparable sales in the first quarter. Its stock is down less than 1.0% in pre-market trading.
Bank of America/Merrill Lynch upgraded Caterpillar (CAT) and ExxonMobil (XOM) to Buy from Neutral. That is lending a measure of support along with the news that Merck's (MRK) KEYTRUDA drug has been approved for expanded use by the FDA.
The early gains in those blue-chip stocks, though, hasn't been enough to turn the futures tide entirely.
The same can be said for yet another encouraging jobless claims report. Initial claims for the week ending May 6 decreased by 2,000 to 236,000 (Briefing.com consensus 238,000); meanwhile, continuing claims for the week ending April 29 dropped by 61,000 to 1.918 million, which is the lowest level since November 5, 1988.
The jobless claims data certainly fits well with the tight labor market narrative even if the subdued average hourly earnings growth seen in the April employment report does not.
Separately, the Producer Price Index for April also produced some upside surprises, with the index for final demand increasing 0.5% (Briefing.com consensus +0.2%) and the index for final demand, excluding food and energy, rising 0.4% (Briefing.com consensus +0.2%).
On an unadjusted basis, the index for final demand is up 2.5% year-over-year, which is largest increase since the 12 months ended February 2012. Excluding food and energy, the index for final demand is up 1.9% year-over-year versus 1.6% for the 12 months ended in March.
The key takeaway from this report is that inflation pressures picked up for producers in April and that is going to create some concerns about a pass-through effect to consumers, particularly since there were price pressures noted across all four stages of intermediate demand.
In other developments, the Bank of England left its policy rate and asset purchase program unchanged, both of which were expected, and oil prices ($47.85, +$0.52, +1.1%) continue to rebound, helped in part by some short-covering activity.