The stock market acted friendly toward the bulls on Thursday, yet the early indication suggests they shouldn't get too attached to it. The S&P futures are down 22 points and are trading 0.7% below fair value. The Nasdaq 100 futures are down 96 points and are trading 1.2% below fair value. The Dow Jones Industrial Average futures are down 172 points and are trading 0.6% below fair value.
What has caused the cold detachment?
Some reports will blame Brexit uncertainty. That's a stretch considering the pound is up 0.7% today against the dollar and the FTSE 100 is down just 0.8%, which is far from a frantic move in the market that should be most impacted by Brexit fears.
Some reports will cite the clarification from the U.S. Trade Representative's office that the next round of tariffs for China are not on hold, as had been reported yesterday. There is some merit in this catalyst only because the hopeful headline yesterday helped foster a positive trading tone. Commerce Secretary Ross reportedly said, too, that it is unlikely that a formal trade deal will be reached ahead of the planned January tariff increase.
Some reports will highlight remarks from ECB President Draghi feeding into the market's peak growth concerns. To that end, Mr. Draghi acknowledged that there has been a loss of growth momentum that could lead to lower inflation, but that it is unclear if it is a temporary or longer-lasting slowdown. The ECB, he said, will be in a better place in December to assess the risk.
These factors are all part of the mix, as is a Bank of America/Merrill Lynch downgrade of Home Depot (HD) to Neutral from Buy that has the Dow component down 1.9%.
The primary catalyst that has mixed things up, however, is the disappointing earnings results and/or guidance from NVIDIA (NVDA), Applied Materials (AMAT), Nordstrom (JWN), and Williams-Sonoma (WSM), all of which are getting clobbered in pre-market action.
NVIDIA stands out as the biggest disappointment. It is down 17% as weaker-than-expected demand, which left the company with excess inventory, led to fourth quarter revenue and EPS guidance that is well below current consensus estimates.
The rub for the broader market is that NVIDIA's disappointment, as well as AMAT's disappointing guidance, is expected to hit the semiconductor industry and other growth stocks. Even Intel (INTC) is indicated 1.4% lower despite announcing a $15 billion share buyback authorization.
That is the root of the problem for the Nasdaq 100 futures, which are also feeling the weight of negative publicity surrounding Facebook (FB).
The deep root of the problem, though, remains the same. This market is running headlong into growth concerns that are prompting it to question the earnings growth outlook and its willingness to pay premium multiples for earnings that are in question.
That's why there has been multiple compression in the midst of the third quarter reporting period, which is slated to produce the best quarter of earnings growth since the third quarter of 2010, according to FactSet.