Might this be the day that major stock indices take a breather following the huge run off the December 24 low and five straight winning sessions? It sounds reasonable to think that it might be, but then again, it sounded reasonable yesterday to think the same and the market just kept on keeping on with a born-again conviction to buy into weakness.
The major indices closed at their highs for the day, which left the S&P 500 knocking on the door of 2600. That area approximates the bottom end of the trading range that persisted for most of 2018, so, again, it is reasonable to think that the market might run into some resistance as it flirts with reclaiming a posture above the 2018 range lows.
Currently, the S&P futures are down 11 points and are trading 0.5% below fair value. The Nasdaq 100 futures are down 33 points and are trading 0.6% below fair value. The Dow Jones Industrial Average futures are down 82 points and are trading 0.4% below fair value.
Those indications are setting the stage for a modestly lower open. In turn, they are inviting an overreach to explain why the futures market has a downside bias.
Enter talk of trade uncertainty, the partial government shutdown, Brexit angst, and earnings disappointments -- all of which have been in the news mix over the course of this rally effort that has seen the S&P 500 surge 10.4% from its December 24 low.
Those items are not to be disregarded, yet they have been in the technical rally from a deeply oversold condition. Accordingly, the 2600 level for the S&P 500 is likely the inflection point that will bring fundamental factors back into play.
That's not to say the rally can't continue, only that the burden of fundamental proof has risen to keep it going with a full head of steam. Fittingly, next week will mark the start of the fourth quarter earnings reporting period and it will also feature a contentious vote in Parliament over the UK Brexit plan, which many reports suggest will not pass.
There are some reports this morning indicating the March 29 Brexit date might be delayed as part of a last-ditch effort to avoid a no-deal Brexit. In any event, there is still a great deal of uncertainty surrounding this particular event that could stoke some volatility in the coming week.
The Consumer Price Index (CPI) for December didn't stoke any volatility. It was right in-line with the Briefing.com consensus estimates that called for a 0.1% month-over-month decline in total CPI and a 0.2% increase in core CPI, which excludes food and energy.
The decline in total CPI was fueled by the energy index, which fell 3.5% on the back of a 7.5% decline in the gasoline index. A 0.3% increase in the shelter index drove the increase in core CPI, which was offset somewhat by a 0.2% decline in the price index for used cars and trucks.
The monthly changes left total CPI up 1.9% year-over-year, versus 2.2% in November, and core CPI up 2.2%, which was unchanged from November.
The key takeaway from the report is that it supports the Fed's born-again belief that it can be patient with its policy approach given that the core inflation trend is stable around the longer-run target at a time when data here and abroad is revealing some softening in economic activity.
On a related note, Fed Vice Chair Clarida said in a speech last night that, with inflation muted, the FOMC can afford to be patient with its policy approach. China, meanwhile, is planning to reveal a 2019 GDP growth target of 6.0% to 6.5%, according to Reuters, compared to the 2018 growth target of around 6.5%.
Treasury yields are down two to four basis points for securities ranging from the 2-yr note to the 30-yr bond.