Will the S&P 500 rest on the seventh day? It is looking that way at the moment. Following six straight gains for the cash market, the S&P futures are down three points and are trading 0.2% below fair value.
That negative disposition can be pinned predominately on an underlying sense that the market is due for some profit taking following an advance of 58 points, or 2.5%, over the last six sessions. Moves like that often invite assertions that the market is overbought on a short-term basis and due for a pullback.
The recognition that we are heading into a three-day weekend might also be playing a part in the subdued tone. When the market will be closed for an extended period of time, traders often take steps to flatten positions in order to limit their risk in the event something bad happens while the market is closed.
On a related note, there is a semblance of risk aversion in the Treasury market this morning. Prices there are rising (and yields are falling) across the curve.
That move is tied in part to a poll out of the UK pointing to a narrowing lead for the conservatives in front of the upcoming June 8 election. That is generating some angst that conservatives might not rule the parliamentary roost as expected, which is another way of saying that political uncertainty appears to be higher in the UK today than it did yesterday.
As an aside, President Trump is attending the G7 meeting in Italy this weekend and will soon return from his foreign trip.
There is some added attention also being paid to the continued drop in oil prices in the wake of Thursday's news that OPEC and certain non-OPEC nations will extend their production cut (but not increase it) for nine months. Oil prices dropped 4.8% on Thursday to $48.90 per barrel and they are down another 0.1% this morning at $48.83.
The economic data out of the U.S. this morning has been another attention grabber.
The Durable Orders Report for April produced some headline surprises. Total orders declined 0.7% (Briefing.com -1.8%) while orders excluding transportation declined 0.4% (Briefing.com consensus +0.4%). Strikingly, there were large upward revisions for March, with total orders increasing 2.3% (from 0.7%) and orders excluding transportation increasing 0.8% (from -0.2%).
The key takeaway from the report is that nondefense capital goods orders excluding aircraft -- a proxy for business spending -- were flat for the second straight month. Shipments of those goods, which factor into GDP forecasts, declined 0.1% in April.
That creates a nice segue into the second estimate for first quarter GDP, which revealed a seasonally adjusted annual growth rate of 1.2% (Briefing.com consensus +0.8%) versus the advance estimate of 0.7%. The GDP Deflator was revised down to 2.2% (Briefing.com consensus 2.3%) from 2.3%.
The upward revision was attributed to increases in nonresidential fixed investment and personal consumption expenditures being larger than previously estimated and the decrease in state and local government spending being smaller than previously estimated.
Real final sales, which exclude the change in inventories, increased 2.2% versus 1.6% with the advance estimate. That is slightly below the prior 10-quarter average of 2.3%.
The key takeaway from the report is that the revision moved in the right direction, which will aid in tempering concerns about the slowdown when pitted against some otherwise rosy forecasts for the second quarter (Atlanta Fed GDPNow model at 4.1%) that should produce a more encouraging average for the first half of 2017.
Enjoy your holiday weekend!