The stock market is indicated to open noticeably lower today. The S&P futures are down 20 points and are trading 0.7% below fair value. The Nasdaq 100 futures are down 70 points and are trading 0.8% below fair value. The Dow Jones Industrial Average futures are down 190 points and are trading 0.7% below fair value.
We are loathe to say the negative bias is due to trade deal uncertainty considering the mid-week gains were reportedly rooted in trade deal optimism.
What's more is that the trade worries today are being blamed in part on the recent executive order that is going to make business life difficult for Chinese telecom equipment firm Huawei and its suppliers. Remember, that news was out yesterday, and while many of the semiconductor companies reacted negatively to it, the broader market did not. In fact, every sector closed higher yesterday.
The point is, this market doesn't really know what to think -- and that is a point we have made throughout the week to explain the market's fickle behavior.
Basically, there were no new negative trade headlines of note mid-week, so the absence of a new negative was construed as a positive. Stock prices rallied.
Today, there are reports in the Chinese press that have a combative tone, suggesting it would be pointless for U.S. officials to visit China for further trade discussions if the U.S. doesn't change its bully-like approach. So, the market is back to thinking -- or so it seems -- that this "little squabble" isn't going to be resolved soon. Stock prices are retreating.
This trade angst will pervade market narratives, yet there is more to the negative bias at this juncture.
Enter NVIDIA (NVDA), Pinterest (PINS), Baidu (BIDU), and Deere (DE).
These companies all reported earnings results after yesterday's close and, in one form or another, they all disappointed investors.
NVIDIA refrained from providing full-year guidance; Pinterest posted a larger-than-expected loss and guided full-year revenues below the consensus estimate; Baidu missed the consensus fiscal Q1 consensus EPS estimate and guided Q2 revenues below consensus; and Deere came up shy of fiscal Q2 EPS expectations, guided full-year revenues below consensus, and said softening conditions in the agricultural sector are causing it to adopt a more cautious financial outlook for the year.
This grouping has touched a nerve, as their disappointments have brought valuation, trade, and growth concerns back to the surface. What they have done, then, is provide a basis to question the staying power of the mid-week rally effort.
Part of that rally effort was wrapped up in the report that President Trump was likely to delay the implementation of tariffs on autos and auto parts from the EU and Japan. That report is now official. Tariffs will be delayed for six months.
There was a bump in the futures market on the headline, which seemed a little odd only because this news had been baked in already. We suppose, though, it removed that last shred of doubt.
In any case, the bump has not altered the expectation for a noticeably lower start.