If you happen to be struck with a sense of deja vu this morning, it is understandable. Just like last week, North Korea has pushed ahead with a provocative act, conducting its sixth nuclear test since 2006 over the weekend, and there is a major hurricane -- Irma, now a category 5 -- making its way west toward the Caribbean and triggering a state of emergency in Florida and Puerto Rico.
For good measure, there are some rumblings that budget and debt ceiling negotiations could be upended in the event the president elects to end the DACA program and/or Hurricane Harvey relief funding is attached to a request for a debt ceiling increase.
The sum of those headline parts has translated into a cautious disposition in the early-going.
The S&P futures are down six points, the Nasdaq 100 futures are down 14 points, and the Dow Jones Industrial Average futures are down 71 points. Those indications, should they hold, would leave the major indices on track to open the session 0.2% to 0.3% lower.
How the stock market fares after that remains to be seen, but of course it fared just fine last week, bolstered by a sense of optimism that the president showed measured (and diplomatic) restraint in his response to North Korea's provocative act and a sense of optimism that the need for federal aid after Harvey would produce a budget and debt limit agreement in Congress without any eleventh-hour drama.
That thought process will be put to the test this week, and if the headlines increasingly suggest the market got ahead of itself last week with its rose-colored view of things, then shades of grey will return and the stock market's bullish demeanor will get reined in.
For now, it's acting like a dainty bull in a china shop with wide aisles, refusing to run completely amok despite having the room to do so, largely because it has seen this movie before and it has always had a happy ending. To wit, the Nasdaq ran to a new record high last week and the S&P 500 is lurking just below its record high set last month.
There is some risk in that sense of complacency, yet it is one many investors have been willing to run considering the CBOE Volatility Index is down 16.0% this year. That said, the CBOE Volatility Index is up 16% to 11.79 in the early-going, as the aforementioned headlines and an awareness that September has historically been the worst month for the market have prompted some defensive positioning on the other side of the Labor Day break.
That defensive mindset has also popped up in the Treasury market, where the yield on the 10-yr note has fallen five basis points to 2.11%, and in gold prices, which are up 0.5% to $1336.70/troy ounce. The U.S. Dollar Index is down 0.2% to 92.48.
The big corporate news of note this morning is the announcement from United Technologies (UTX) that it is going to acquire Rockwell Collins (COL) for $30 billion, or $140.00 per share, in cash and stock. This deal has been rumored to be in the works; hence, shares of COL are up only 0.3% in pre-market trading even though the offer price is a 25% premium over the price COL was trading at in early August when it was said a deal could happen.
The Factory Orders report for July (Briefing.com consensus -3.2%; prior +3.0%) at 10:00 a.m. ET is the only release of note on an economic calendar that is filled mostly with second-tier releases this week.
Separately, oil prices ($48.02, +$0.73, +1.5%) have made a nice move to start the week, as demand is expected to ramp up again as refineries shut down in the wake of Harvey come back online. The uptick there could give a needed boost to the S&P 500 energy sector, which is down 16.1% year-to-date.