Today is Valentine's Day and market participants were showing their love for the stock market in overnight action with index futures all throwing off indications for a positive open.
It has been a love affair to be sure since December 24, as the S&P 500 is now up 17.1% from its Christmas Eve low and trading north of its 200-day moving average (2744).
At this juncture, though, the stock market is simply riding the price trend. We say that, because prices keep going up on recycled news items and they also keep going up even though earnings estimates for the first quarter and full year keep coming down.
To wit, there is optimism about the U.S. and China making progress on a potential trade deal; there is enjoyment over fourth quarter earnings coming in better than feared; there is relief the U.S. government might avert another shutdown; and there is giddiness that the Federal Reserve has pivoted to a dovish-minded policy stance.
There is the "pain trade," too, as a market that refuses to go down -- or to stay down for long -- is driving short-covering activity and forcing sidelined participants off the sidelines, fearful of missing out on further gains.
That is all helping the price trend, which has been an indefatigable rising trend.
We'll have to see if buyers can maintain their affection for the stock market today. There was some jarring retail sales data for December that is going to play into the market's concerns about the U.S. economy slowing down.
Specifically, retail sales declined 1.2% (Briefing.com consensus +0.2%) on the heels of a downwardly revised 0.1% increase (from +0.2%) in November. Excluding autos, retail sales fell 1.8% after a downwardly revised unchanged reading (from +0.2%) for November.
The key takeaway from this disappointing report is that the weakness wasn't isolated to gasoline station sales (-5.1%). It was pretty broad-based across discretionary spending categories like furniture and home furnishings (-1.3%), electronics and appliance stores (-0.1%), clothing and accessories (-0.7%), miscellaneous store retailers (-4.1%), nonstore retailers (-3.9%), and restaurants (-0.7%).
Whether the plummeting stock market in December had anything to do with that remains to be seen. If it did, then one might expect to see a nice rebound in January considering the stock market rallied in January.
For now, though, it is a data point to reinforce the idea that everything isn't peachy-keen with the U.S. economy, as the rally in stock prices might lead one to think.
Other data this morning included the weekly initial claims report and the Producer Price Index for January.
- Initial claims for the week ending February 9 increased by 4,000 to 239,000 (Briefing.com consensus 225,000). Continuing claims for the week ending February 2 increased by 37,000 to 1.773 million.
- The key takeaway from the report is that the four-week moving average of 231,750 for initial claims is the highest since January 27, 2018.
- The Producer Price Index for final demand declined 0.1% in January (Briefing.com consensus +0.1%), pulled down by a 0.8% decline in the index for final demand goods. Excluding food and energy, the index for final demand increased 0.3% (Briefing.com consensus +0.2%). On a year-over basis, the index for final demand was up 2.0% while the index for final demand, excluding food and energy, was up 2.6%.
- The key takeaway from the report is that it could portend margin pressures for producers if they don't choose to pass along the higher costs to their customers.
The economic data, and particularly the Retail Sales Report, has taken the steam out of the futures market and has helped put a bid in the Treasury market.
Prior to the release of the data, the S&P futures were up nine points and the Dow Jones Industrial Average futures were up 103 points. Those gains were attributed largely to the optimism about the U.S. and China making a trade deal, as President Trump is reportedly considering a 60-day extension of the tariff hike deadline, according to Bloomberg.
Hmmmm. Sounds like a familiar source of optimism.
Anyway, that macro headline had been taking precedence over a mixed batch of earnings that featured results from Dow components Cisco Systems (CSCO) and Coca-Cola (KO), and other well-known companies like Canada Goose (GOOS), NetApp (NTAP), American International Group (AIG), Hyatt Hotels (H), Waste Management (WM), and Duke Energy (DUK).
The responses to those results have been mixed, yet they had largely taken a backseat to the macro headline pertaining to trade negotiations, which now seems to be taking a backseat to the disappointing retail sales headline.
There is a fundamental excuse today, then, to do some selling of an overbought market. The S&P futures are currently down 12 points and are trading 0.5% below fair value.