It has been an interesting few days for the stock market, as it seems to have been easily influenced by developments that were largely expected.
First, it was the midterm election result, and then it was the FOMC decision and policy directive. The former produced a split Congress and the latter produced a decision to hold rates steady this month and a directive that signaled the likelihood of another rate hike in December.
Neither outcome was truly surprising.
If anything, the true surprise was that the forward-looking market moved noticeably on both developments. In theory, there shouldn't be much movement because a forward-looking market should have the news priced in to a large degree, such that the arrival of the expected news simply confirms how the market reacted to it ahead of time.
The strong move on Wednesday, then, was a bit of a bender. Thursday's action was a bit of a hangover, which got treated with the sobering reminder from the Federal Reserve's policy directive that interest rate risk is tilted to the upside.
The directive left the market ample reason to think the Federal Reserve will be raising the target range for the fed funds rate again at its December meeting.
The Producer Price Index Report for October, which was released this morning, has helped make the Federal Reserve's rate-hike case.
The index for final demand jumped 0.6% (Briefing.com consensus +0.2%) while the index for final demand, less food and energy, rose 0.5% (Briefing.com consensus +0.2%). Those increases left the index for final demand up 2.9% year-over-year, versus 2.6% in September, and the index for final demand, less food and energy, up 2.6% year-over-year, versus 2.5% in September.
The headline pressures will stoke concerns about pass-through inflation to the consumer, which have already been stoked by numerous companies during the third quarter earnings-reporting period talking about higher input costs and increasing prices.
The Consumer Price Index for October will be released next Wednesday.
Strikingly, the Treasury market has taken the PPI data in stride. The 2-yr note yield is down one basis point to 2.96% while the 10-yr note yield is down one basis point to 3.22%. The lack of selling pressure can be attributed perhaps to the expected weakness for stocks at the open.
The S&P futures are currently down 17 points and are trading 0.5% below fair value. The Nasdaq 100 futures are down 60 points and are trading 0.9% below fair value. The Dow Jones Industrial Average futures are down 129 points and are trading 0.4% below fair value.
Dow component Walt Disney (DIS) is helping to keep the Dow's opening losses in check. It is indicated 1.3% higher following the company's better-than-expected third quarter earnings report.
Still, Disney's news has not carried the morning, which has been overcast by disappointing guidance from Skyworks Solutions (SWKS), an Apple (AAPL) supplier, Yelp (YELP), and Activision (ATVI), that is pressuring the growth stocks.
That news is mattering in the here and now, yet the main pressure point that is causing some reservations about later days is the specter of rising interest rates slowing economic and earnings growth.
That concern was a catalyst for the sell-off experienced by this forward-looking market in October and it is a concern that will continue to create some trading volatility since the Federal Reserve's end point remains unknown.