The futures for the major indices are down again this morning, indicating the opening tick for the cash market is going to be to the downside. Initial losses, though, should be relatively modest in scope.
The S&P futures are down 11 points and are trading 0.3% below fair value. The Nasdaq 100 futures are down 32 points and are trading 0.2% below fair value. The Dow Jones Industrial Average futures are down 94 points and are trading 0.2% below fair value.
In light of how the stock market rallied back from yesterday's early lows, it's doubtful anyone is overly concerned by the current futures indication.
That's not to say they are happy about it -- only that they have seen this act play out before where the tonality of the early headline narrative is tuned to the disposition of the futures market.
With that, the ostensible drivers of this morning's negative bias reportedly include the following:
- Concerns about yesterday's FOMC Minutes pointing to the potential for the fed funds rate to be pushed above the long-run rate (currently estimated to be 3.00%).
- The 2.9% drop in China's Shanghai Composite and ongoing slowdown concerns surrounding China's economy
- Japan posting its first year-over-year export decline (-1.2%) since November 2016, which is sparking worries about tariff actions.
- Festering concerns about hitting peak growth from both an economic and earnings standpoint.
There has been less attention on good earnings news, partly because there haven't been any crowd favorites reporting their results and partly because the results have been on the mixed side with many companies coming up shy of consensus revenue estimates.
Dow component Travelers (TRV) beat estimates for its top- and bottom-lines by a comfortable margin, yet its stock is indicated 1.3% lower. Former Dow component Alcoa (AA) is indicated 4.3% higher after easily beating earnings expectations and raising the low end of its FY18 EBITDA outlook.
Textron (TXT) came up well shy of earnings estimates and is indicated 7.4% lower. KeyCorp (KEY) reported earnings in-line and said it sees fourth quarter average loans up low single digits. Its stock is indicated 2.9% lower.
Sealed Air (SEE) didn't report its actual results, but it issued a third quarter profit warning and lowered its FY18 outlook citing currency headwinds and higher raw materials and freight costs. Shares of SEE are indicated 10.0% lower.
Thus far, the third quarter earnings results in aggregate have been pretty good. FactSet reports a blended growth rate of 19.6% for the S&P 500. The latest batch of reporters, though, hasn't packed any hard-hitting punch to the bears.
It doesn't appear as if this morning's economic data packed any market-moving punch either even though both the initial claims and Philadelphia Fed Index reports were better than expected.
Initial claims for the week ending October 13 dropped by 5,000 to 210,000 (Briefing.com consensus 212,000). Continuing claims for the week ending October 6 decreased by 13,000 to 1.640 million, which is the lowest level since August 4, 1973.
The key takeaway from the report is that it covered the week in which the survey for the October employment report was conducted. Accordingly, with the low level of initial claims, economists will have a basis to forecast another solid increase in nonfarm payrolls.
The Philadelphia Fed Index eased to 22.2 in October (Briefing.com consensus 20.0) from 22.9 in September. The dividing line between expansion and contraction for this regional manufacturing survey is 0.0.
The key takeaway from this report is that manufacturers remain optimistic about the outlook, as 48% of respondents expect business activity to increase over the next six months versus only 14% that expect declines.
There is a much larger percentage of market participants who will be expecting an opening decline for the major indices based on the early indication. It's fair to say, too, that a large percentage of market participants are also probably expecting some type of rebound try given how things unfolded on Wednesday.
The success of any rebound try, however, is apt to hinge on the performance of the information technology, financial, and industrial sectors, as well as the tolerance for increases in market rates, which include a three-handle in front of the 5-yr, 10-yr, and 30-yr maturities. The 3-yr note, meanwhile, is knocking on that door with a current yield of 2.99%.