There is ample reason for the stock market to trade higher today, which is perhaps why there is an underlying strain of anxiousness about the positive bias in place ahead of the open.
The S&P futures are up 9 points and are trading 0.4% above fair value. The Nasdaq 100 futures are up 27 points and the Dow Jones Industrial Average futures are up 100 points.
We would attribute that favorable disposition to four principal factors:
- Gains in the bank stocks following the release of the CCAR results, which paved the way for a host of banks to raise their dividends and/or share buyback plans
- The 2.2% gain in China's Shanghai Composite, which has helped fuel an expectation for a continued rebound in the U.S.
- The better than expected fiscal fourth quarter report and FY19 outlook from Dow component Nike (NKE), which has that stock up 10% in pre-market trading; and
- News that EU leaders have struck a compromise on a migration plan, which is helping to temper some of the political uncertainty there
There will be a suggestion by some parties, too, that "end of quarter" window dressing by fund managers is helping to push things up as well.
That might sound contradictory considering the weakness this week has been attributed to "end of quarter" trading dynamics. The one area we can see that might fit the bill of benefiting from "end of quarter" rotation, based on today's headlines, is the financial sector.
The financial sector is down 3.5% quarter-to-date, versus the S&P 500, which is up 2.9%. The dividend increases and share repurchase plans offer good cover for some sector rotation activity today.
That is the rub of today's session, though. The financial sector, which has been ailing, should do well, but if it rolls over intraday, it could pull the broader market with it, as traders don't like to see underperforming stocks fall back into a mode of underperformance when there is good news out there to support them.
The Treasury market, then, will be a focal point since the financials have been flattened alongside a flattening yield curve. At the moment, the yield on the 2-yr note is unchanged at 2.52% while the yield on the 10-yr note is unchanged at 2.85%.
The mixed action fits with the relatively mixed Personal Income and Spending Report for May.
Personal income jumped 0.4%, as expected, yet personal spending rose only 0.2% (Briefing.com consensus +0.4%), which was weaker than expected. The personal savings rate was 3.2% versus 3.0% in April.
The PCE Price Index and core PCE Price Index, which excludes food and energy, were both up 0.2%, as expected. That left the year-over-year gains at 2.3% and 2.0%, respectively.
The key takeaway from the report is twofold: (1) Real PCE was flat, which is likely to prompt some downward revisions to Q2 GDP forecasts and (2) the price indexes are moving in the direction anticipated by the Fed, which means the Fed is also likely to keep moving the fed funds rate higher as anticipated.
There wasn't any meaningful reaction in the futures market following the report.