A good week so far for the stock market is about to get better. Why that's the case can be debated, yet there is no mistaking that the major indices are on course for a higher open.
The S&P futures are up 12 points and are trading 0.5% above fair value. The Nasdaq 100 futures are up 42 points and are trading 0.7% above fair value. The Dow Jones Industrial Average futures are up 169 points and are trading 0.7% above fair value.
The headline connection reportedly revolves around the notion that an opening exists to reach some kind of trade truce with China at this weekend's G20 meeting.
There's nothing novel in that notion. The fact of the matter is that there has always been an opening, but since the futures market is looking good this morning, it resonates as an encouraging factor. If the futures were pointed sharply lower, it's a safe bet that "trade concerns ahead of the G20 meeting" would be touted as the reason why.
President Trump and President Xi are the lead parties to the biggest guessing game going right now and what everyone wants to know is this: will they have steak or fish at Saturday's dinner meeting?
All kidding aside, everyone wants to know if they will strike a deal that forestalls further protectionist trade action. If they do in a credible fashion, the stock market should take off. If they don't, the stock market could run into some problems.
Coincidentally, how the stock market responds to Fed Chair Powell's speech today at the Economic Club of New York around 12:00 p.m. ET could play a part in how the trade meeting goes between President Trump and President Xi.
Market participants are hopeful that the Fed chair will toss a hint that there might not be three rate hikes in 2019, which is currently the Fed's baseline projection. Such an overture would be uplifting for the stock market, yet if the Fed chair conveys a hawkish-sounding, rate-hike line, the stock market might not react kindly.
A renewed sell-off in the stock market going into the G20 meeting could prompt President Trump, who keeps a close watch on the stock market's performance and said in a Washington Post interview that he isn't even a little bit happy with his selection of Mr. Powell, to strike a more conciliatory tone than the one he expressed in Tuesday's interview with The Wall Street Journal.
Conversely, if the stock market continues to rally ahead of the meeting, emboldened by a sense the Fed is inclined to temper its rate-hike expectations, the president would presumably be emboldened to maintain a hard-line stance on trade matters.
It's all very intriguing, and all very uncertain at this juncture, which is why one shouldn't be surprised to see lower-than-average trading volume that is reflective of the uncertainty.
There isn't any uncertainty surrounding the responses to the latest earnings reports and outlooks shared by Salesforce.com (CRM) and Tiffany & Co. (TIF). Shares of CRM are trading 8.9% higher in pre-market action while shares of TIF are trading 10.7% lower.
There is some added certainty around third quarter real GDP growth, too, as the second estimate produced readings similar to the advance estimate, albeit with some influential modifications.
Real GDP increased at an annualized rate of 3.5% (Briefing.com consensus 3.6%), with downward revisions to personal spending and state and local government spending offsetting upward revisions to nonresidential fixed investment and private inventory investment. The GDP Price Deflator was also unchanged at 1.7% (Briefing.com consensus 1.4%).
The key takeaway from the report is that real final sales, which exclude the change in inventories, were up just 1.2%, which was the weakest growth rate since the fourth quarter of 2016.
Separately, the advance report for international trade in goods for October showed a widening in the goods deficit to $77.2 billion from $76.3 billion in September. Exports were $0.8 billion less than September exports while imports were $0.2 billion more than September imports.
The New Home Sales report for October (Briefing.com consensus 575,000) will be released at 10:00 a.m. ET. That will command some added interest, yet today's trading axis will ultimately revolve around the speech from Fed Chair Powell and the market's interpretation of his remarks.