The S&P futures are up 16 points and are trading 0.7% above fair value. That will translate into a higher start for the cash market, which saw the Dow Jones Industrial Average's wining streak end Tuesday at 12 sessions.
A lot of attribution for the upside bias this morning is being given to President Trump's speech last night. We'll call it a non-GAAP speech, because it excluded a lot of necessary items like details. Still, it had a positive tone nonetheless that has been a placating factor for the market.
The speech itself was mostly a rehash of what was heard during the campaign season, yet the delivery of the message was less cantankerous.
There was mention of a "big" tax reform plan in the works; there was a call for a $1 trillion infrastructure plan driven by a public-private financing partnership; there was a call to repeal and replace Obamacare; there was a call for an effective immigration policy and building a wall on the southern border; and there was a call to increase spending for the military and veterans.
The speech from the president is the easy talking point this morning to explain the pop in the futures, yet there is really more to it than just the president's speech.
- China's manufacturing PMI data for February was stronger than expected
- European markets are up sizably, helped by some reassuring earnings and economic data, as well as by some reduced angst over the upcoming French election
- Home improvement retailer Lowe's (LOW) delivered an impressive fourth quarter report and outlook
- The upside bias has fed the fear of missing out on further gains (and the fear of being short the market we might add); and
- Today is the first day of a new month, which is a day that often invites new money to the mix when the prevailing price trend is rising
In terms of the Personal Income and Spending Report for January, it was a bit of a mixed bag.
Personal income was up 0.4%, as expected, while personal spending was a bit weaker than expected, up 0.2% (Briefing.com consensus +0.3%). The PCE Price Index increased 0.4% and the core PCE Price Index, which excludes food and energy, was up 0.3% (Briefing.com consensus +0.2%). The personal savings rate was 5.5% versus 5.4% in December.
A 0.4% increase in wages and salaries helped pace the pickup in income growth, along with a 0.8% increase in proprietors' income and a 1.0% increase in rental income.
The sticking point with this report is twofold:
- Real PCE declined 0.3%, led by a 0.3% decline in goods spending and a 0.2% decline in spending on services. That is going to be a negative input for Q1 GDP forecasts; and
- The PCE Price Index was up 1.9% year-over-year, which leaves it tracking toward, and very close to, the Fed's longer-run inflation target of 2.0%, which is to say it seems to satisfy the argument of any Fed official aiming to raise the policy rate at the March meeting (the core PCE Price Index was up 1.7% year-over-year, unchanged from December)
This report also exposes some of the disconnect between "soft" survey data, like yesterday's Consumer Confidence report, and the "hard" data. The former has been uplifting while the latter has suggested there is still plenty of heavy lifting left to do to reach the promised GDP growth land of 3-4%.
The ISM Manufacturing Index for February (a "soft" report) and the Construction Spending Report for January (a "hard" report) will be released at 10:00 a.m. ET, while auto and truck sales for February ("hard" data) will be released throughout the session.