The stock market had another bad day on Tuesday. It was not as bad as some media outlets wanted you to believe with startling headlines suggesting stock prices were "plunging." They were not plunging; they were declining in an overdue pullback for an overbought market.
At the end of the day, the major indices were down 0.9% to 1.4%. The S&P 500 fell 1.1%. According to Bespoke Investment Group, that loss marked the first time in 310 trading days that the S&P 500 experienced consecutive declines of 0.5% or more.
That was a record streak, yet all good things come to an end. The stock market's resilience to selling efforts over that time speaks to the grip the bulls have had on this market. They don't appear willing to let go of things so easily just yet either.
The S&P futures are up 10 points and are trading 0.4% above fair value. The Nasdaq 100 futures are up 34 points and the Dow Jones Industrial Average futures are up 212 points.
A stellar earnings report from Dow component Boeing (BA), which issued much better than expected fiscal 2018 guidance, has provided a boost in trading sentiment. Shares of BA are up 18 points, or 5.4%, in pre-market action, which is going to translate quite favorably for the price-weighted Dow Jones Industrial Average since BA is its highest-priced stock.
The fact of the matter, though, is that the bulk of the gains in the futures market were logged ahead of the Boeing report. That disposition is a testament to the buy-the-dip mentality that has taken over time and time again in this market.
It's a response that has paid handsomely in the post-2008 years and it's a response that has been oriented around the persistence of low interest rates.
The latter is a key reason why the stock market has tolerated historically high valuations, which is why stock market volatility is bound to pick up as market rates continue to rise.
Market participants are convinced the FOMC's policy directive today will convey a decision to leave the target range for the fed funds rate unchanged at 1.25% to 1.50%. That directive, however, may also convey an improved outlook for the U.S. economy.
If the latter is the case, the pundits will be quick to highlight how it was a "hawkish" directive. In effect, all the FOMC will be signalling is that it is on track to raise the fed funds rate again at the March meeting, which the market already expects for the most part anyway. To wit, the CME FedWatch Tool shows a 76% probability of a rate hike at the March meeting.
Therefore, heed the words of the directive more so than the hyperbole of the talking heads.
That directive will be released at 2:00 p.m. ET. It will be a focal point today much like the president's State of the Union Address was last night.
The president's address stuck to the preview script, with the president touting the Tax Act and covering the administration's stance on infrastructure spending, trade, immigration, and national security issues. As an aside, he reiterated an aim to bring down prescription drug prices.
With that address in-line with expectations, we wouldn't assign much credence to the position that it is driving up the futures market.
This morning's economic data isn't having much impact either, other than perhaps helping to maintain the bullish bias. The ADP Employment report for January was stronger than expected, showing an estimated 234,000 positions were added to private sector payrolls (Briefing.com consensus 190,000). Meanwhile, the fourth quarter Employment Cost Index increased 0.6% (Briefing.com consensus +0.5%), which was close to expected.
The Chicago PMI report for January (Briefing.com consensus 61.0) will be released at 9:45 a.m ET and will be followed at 10:00 a.m. ET by the Pending Home Sales Index for December (Briefing.com consensus +0.6%).
Those reports will be preceded by a strong open for the stock market. That isn't entirely surprising given the stock market's propensity to buy into any dip. What is of greater interest is how the stock market closes. Will it manage to sustain the opening gains or will it give way again to renewed selling interest?
A negative close after a decidedly higher open could feed a belief that a larger pullback is still in order for the stock market.
As a reminder, Facebook (FB), Microsoft (MSFT), and Qualcomm (QCOM) will be among the heavyweights reporting their earnings results after today's close.