It's pretty clear this morning that the stock market is going to start today on a decidedly higher note. The S&P 500 futures are up 27 points and are trading 1.1% above fair value. The Dow Jones Industrial Average futures are up 255 points and the Nasdaq 100 futures are up 68 points, which leaves them both about 1.1% above fair value.
The bullish bias this morning has been spawned by the bullish close on Friday, which left each of the major indices up at least 1.4%.
Things weren't looking too great at one point on Friday. The S&P 500 was down as much as 1.9% -- a loss that left it slightly below a key technical support level known as the 200-day simple moving average (2539).
That average hadn't been tested since early November 2016. Sure enough, it proved to be a call to arms for buyers, just like it did in 2016, and earnest buy-the-dip traders ran with the technical catalyst to the closing bell.
That buying conviction, though, will be put to the test today. That's because the equity index futures aren't the only thing pushing higher this morning. Interest rates are, too.
The yield on the 10-yr note is up three basis points to 2.86%. We're not sure what the accepted spin will be for that move, but it matters for the stock market which narrative prevails.
Is that bump in rates tied to the expected rebound in stocks, implying it is a rotation-based trade, or is it linked to growing concerns about a rising budget deficit?
The answer matters because the former would help sustain the bullish bias, whereas the latter would undermine it.
There was a good bit of undermining last week as Congress passed a two-year budget agreement that lifted the spending caps on defense and non-defense spending by approximately $300 billion. Today, President Trump will announce a $1.5 trillion infrastructure plan, with reports suggesting it will include a $200 billion contribution in federal spending.
There is a lot this week that has the potential to move the Treasury market, starting with today's Treasury Budget report for January at 2:00 p.m. ET and continuing throughout the week with the CPI, Retail Sales, PPI, Industrial Production, and Housing Starts reports.
Separately, there are reports this morning touching on the notion that the Bank of England is laying the groundwork for rate hikes this year and that the European Central Bank may need to follow suit.
That isn't a new perspective, yet it reinforces a belief that has been a cause of upset for the Treasury market and the U.S. dollar in 2018.
There isn't much corporate news of note to begin the week, but a handful of items are helping market participants think in bullish terms.
To that end, Qualcomm (QCOM) and Broadcom (AVGO) will meet on Valentine's Day (how sweet) to discuss a possible merger, which Broadcom says it has committed financing for; General Dynamics (GD) is acquiring CSRA, Inc. (CSRA) for approximately $9.6 billion, or $40.75 per share, in cash, which is a 32% premium over Friday's closing price; and CNA Financial (CNA) topped fourth quarter earnings expectations and announced a $2.00 special dividend.