Brace yourself. The stock market is NOT expected to rally at the open. Hard to believe, we know, yet the futures are pointing to a subdued start.
Currently, the S&P futures are down three points, the Nasdaq 100 futures are down ten points, and the Dow Jones Industrial Average futures are down seven points.
There's no need to dig deep to explain the subdued disposition. It is simply a natural cooling off period following last week's torrid start to 2018.
It's remarkable that the futures are barely down at all after the cash indices rallied between 1.6% (Russell 2000) and 3.4% (Nasdaq Composite) in just four days. Thus far, there hasn't been any rush to bank long-term capital gains -- or short-term capital gains for that matter.
The bull market continues to run, underpinned by the persistence of low interest rates, strong earnings growth, and some speculative flair.
Corporate news this morning is mostly on the supportive side of things.
Kohl's (KSS), Children's Place (PLCE), Darden Restaurants (DRI), Lululemon (LULU), Crocs (CROX), and Floor & Decor (FND) all raised their sales and/or earnings guidance in a reflection of healthy consumer discretionary spending activity.
Goldman Sachs upgraded United Technologies (UTX) to Buy from Neutral while JPMorgan Chase upgraded fellow Dow component, and industrial giant, Caterpillar (CAT) to Overweight from Neutral.
Neurocrine Biosciences (NBIX) sees fourth quarter revenues coming in above analysts' consensus estimate. Hershey (HSY) has reportedly submitted a final bid to buy Nestle's U.S. candy business.
On any other day, this collection of headlines might have been good enough to spur a nice-sized pop in the futures market, yet buying conviction appears to be restrained at the moment by a sense that the major indices are short-term overbought and due for a pullback of some kind.
Separately, with the fourth quarter earnings reporting period set for launch, when JPMorgan Chase (JPM), BlackRock (BLK), and Wells Fargo (WFC) report their results this Friday, a bit of a wait-and-see mentality might be creeping in to cool things down a bit.
Investors are basically waiting to hear if the earnings guidance in general justifies the good news that has already been priced into the market.
According to FactSet, S&P 500 earnings are expected to be up 10.5% year-over-year in the fourth quarter with revenues up 6.7%.
That is solid growth by any measure, yet it's a stepping stone to 2018 when S&P 500 earnings are expected to increase 13.1% and revenues are anticipated to jump 5.7%.
It's a rising bar to be sure, yet the earnings trend has been on the stock market's side.