If you wanted a nice setup for a positive open, you got one today.
Apple (AAPL) reported what is being billed as "better than feared" fiscal Q1 results and fiscal Q2 guidance; Boeing (BA) posted what are just plain, strong fourth quarter results and FY19 guidance; the ADP Employment Change report for January showed a solid 213,000 increase (Briefing.com consensus 180,000) in private-sector payrolls; and everyone's favorite support group -- the Federal Open Market Committee (FOMC) -- is going to share the news at 2:00 p.m. ET today that it isn't raising the target range for the fed funds rate.
The futures market has revved up this morning on the news, but it's worth pointing out that the S&P 500 futures are driving in a lower gear.
Currently, the S&P 500 futures are up 12 points and are trading 0.5% above fair value, whereas, the Dow Jones Industrial Average futures are up 238 points and the Nasdaq 100 futures are up 64 points, leaving them trading above fair value by 1.0% and 0.9%, respectively.
It doesn't take a computer scientist or an aeronautical engineer to understand why. Shares of AAPL are up 4.8% and shares of BA are up 6.0% in pre-market trading. Those gains will power the price-weighted Dow Jones Industrial Average; and Apple's influence will also extend to the Nasdaq 100.
The S&P 500, however, appears destined to trail the action, because the reality beneath the surface of things is that the earnings reporting overall is mixed and has ushered in desperate efforts to rationalize away guidance shortfalls as "better than feared."
That interpretation can only get one so far, helping to catalyze a trading bounce perhaps from an oversold position, but ultimately holding back investing conviction on the concern that one might be overpaying if chasing the "good" news.
Since December 24, the market has been pricing out bad outcomes, reclaiming a good chunk of what it lost in the fourth quarter. It has been fair to do so, but with first quarter and calendar year 2019 earnings estimates coming down amid all of the better than feared guidance, it is equally fair to say that the market risks an overreach in accepting less bad news as being truly good news.
Hence, it should be no surprise if the rally effort continues to stall on the basis that the market is in a zone of fair valuation at 15.3x forward twelve-month estimates (which remain at risk of downward revision), leaving it tucked between its five-year historical average of 16.4x and its 10-yr historical average of 14.6x, according to FactSet.
The inference is that there will be good days -- like today perhaps -- and bad days, resulting in more of a sideways-trending market that is awaiting data-based justification to make its next big move, either up or down.
Naturally, there will be lots of interest in Fed Chair Powell's press conference at 2:30 p.m. ET today to explain the FOMC's thinking and what it is seeing in the data to make its policy decisions. There will be added interest, too, in any remarks regarding the Fed's balance sheet normalization effort, which is regarded as a de facto tightening action.
In the interim, one can bank on today's open being a good one that was better than feared at the end of Tuesday's session.