It's one of those mornings where the futures for the major indices are down sharply and there is a nervous buzz in the market about why that is.
There are various explanations, many of which revolve around economic growth perhaps not living up to its perceived potential.
- The Senate tax bill will include a provision to repeal the individual health care mandate and make the individual tax cuts temporary (expiring at end of 2025). These provisions are creating concerns about the plan not wining approval, and have increased angst about the capacity to reconcile the House and Senate bills.
- The spread between the 2-yr note yield and the 10-yr note yield continues to flatten (65 basis points currently, which is a 10-year low)
- High-yield bonds have been on the defensive, evidenced by the 2.3% decline in the iShares High Yield Corporate Bond ETF (HYG) since October 20
- Oil prices ($55.10, -$0.60, -1.1%) are continuing to weaken after yesterday's move by the IEA to cut its oil demand forecast for 2017 and 2018
- Copper prices have been retreating
- The US Dollar Index is weakening
These factors represent quite a shift in the market narrative, which only a short time ago revolved around a synchronized pickup in global growth, increased earnings momentum, and enthusiasm for the prospect of a tax bill getting passed before the end of the year.
Market participants rode that wave with a palpable sense of optimism, which carried each of the major indices to new record highs.
Importantly, they are all still trading relatively close to those record highs, which in turn fed a belief that they had gotten too far ahead of themselves and were due for a pullback. And here we are with a lot of good headline excuses for things to cool off.
It's too early to be convinced that the market is in the midst of a 180-degree turn with its outlook, but for now, the conviction among buyers is lacking.
That is opening the door for a negative start -- and it will be negative with the S&P futures down 11 points, the Nasdaq 100 futures down 22 points, and the Dow Jones Industrial Average futures down 108 points.
This morning's economic data didn't help alter the tone of the futures trade either.
- Retail sales for October increased just 0.2% (Briefing.com consensus +0.1%) on the heels of an upwardly revised 1.9% increase (from 1.6%) for September. Excluding autos, retail sales rose 0.1% (Briefing.com consensus +0.2%) after increasing an upwardly revised 1.2% (from 1.0%) for September.
- The Consumer Price Index (CPI) increased 0.1% in October, as expected, while core CPI, which excludes food and energy, increased 0.2% as expected.
- On a year-over-year basis, total CPI is up 2.0%, versus 2.2% for the 12 months ending September. Core CPI is up 1.8% compared to the 1.7% increase for the 12 months ending September.
- The Empire State Manufacturing Survey slipped to 19.4 in November (Briefing.com consensus 26.0) from 30.2 in October
The key takeaway from the data is that it didn't alter the market's newfangled "growth" narrative, which revolves around concerns about a deceleration in economic activity that will keep inflation pressures in check.
That thinking, and the expected weakness for stocks at the open, has contributed to added buying interest in longer-dated Treasury securities and a further flattening of the yield curve.