Tuesday's final hour made a big difference for the stock market, which was having a hard time establishing any convincing direction. Ultimately, Tuesday's session was settled with a closing rush of buying interest that produced some handsome gains for the major indices and a huge sigh of relief for investors.
That buying momentum looks set to carry over this morning.
The S&P futures are up 28 points and are trading 1.2% above fair value. The Nasdaq 100 futures are up 105 points and are trading 1.5% above fair value. The Dow Jones Industrial Average futures are up 224 points and are trading 1.0% above fair value.
Facebook (FB) will get a good bit of credit for the positive bias. It is up 4.8% in pre-market trading following a third quarter earnings report that has been rightfully described as "good enough" to temper the extreme negativity surrounding the stock. Shares of FB have plunged 32% from their all-time high in July.
The positive response to Facebook's report is a major underpinning factor for the Nasdaq 100 futures, as it has been infectious for other mega-cap technology stocks in need of a price lift of their own.
Facebook didn't have a perfect report, but the price action in the stock has been the key for keeping yesterday's broad market push intact. It has helped investor sentiment along with better-than-expected results from companies like General Motors (GM), T-Mobile (TMUS), Automatic Data Processing (ADP), Amgen (AMGN), and Yum! Brands (YUM) to name a few others.
Earnings news, then, can be considered a helpful factor.
The ballast behind yesterday's rally and today's expected rally at the start of trading likely has more to do, though, with other factors, like month-end rebalancing by funds needing to boost their equity weightings after the October rout and short-covering activity by accounts fearful of getting run over by the rebalancing effort.
Lest we forget, there is also the abiding sense that the stock market has gotten oversold and is due for a meaningful bounce. Coincidentally, November-April is the strongest period for the equity market.
The latter may be a comforting thought on this spooky Halloween Day, yet there are some hurdles ahead for the market, namely the sanctions on Iran's oil exports starting November 4, the midterm election on November 6, the G20 Leaders' Summit (and sidebar for President Trump and President Xi) on November 30 - December 1, and the ongoing matters of Brexit negotiations, Italy's budget standoff with the EU, and trade issues.
The point is that one can't allow themselves to be blinded by the light of this morning's futures action or any rally that might unfold today. The expected rally, as it so happens, is taking a toll on the Treasury market, as is some decent economic news out of the U.S. today.
The ADP Employment Change Report for October revealed an estimated 227,000 positions were added to private-sector payrolls (Briefing.com consensus 180,000). That will lead to some reasonably high expectations for strong nonfarm payroll gains in Friday's Employment Situation Report and perhaps foster some concern about average hourly earnings producing an upside surprise.
Separately, the third quarter Employment Cost Index increased 0.8% (Briefing.com consensus +0.7%) on the heels of a 0.6% increase in the second quarter. That was driven by a 0.9% increase in wages and salaries and a 0.4% increase in benefit costs.
The key takeaway from the report is that it corroborates a trend of rising compensation costs for civilian workers that have been discussed by employers and which have kept the Federal Reserve on a tightening path. To wit, compensation costs for civilian workers were up 2.8% for the 12 months ending September 2018 versus 2.5% for the 12 months ending September 2017.
The 10-yr note yield is up five basis points to 3.16%. That increase in yield might not matter much in the context of today's rally try by the stock market, yet it will come back into focus if it persists since worries about rising interest rates played a large part in igniting the October sell-off.