The stock market had little trouble Thursday getting back on track after its small loss on Wednesday. In fact, the S&P 500, Nasdaq Composite, Russell 2000, and Dow Jones industrial Average barreled their way to new record highs with real resolve as they closed at their best levels of the day.
The energy sector powered the advance, which was fueled partly by encouraging earnings news, but mostly by bullish sentiment.
We'll call it the counter-contrarian rally.
The bullish sentiment was fortified by the recognition that the pullback everyone sees coming because of the bullish extremes in sentiment (a contrarian indicator) still hasn't happened; therefore, a fear of missing out on further gains took over and it was basically a trend-up day that might have been helped along by some short-covering activity.
There is indeed a frothy feel to this market now and a seemingly rote belief that you can't lose buying stocks. The latter, of course, isn't true at all, but rallies often run out of gas when that mentality takes over.
We'll see what happens today. The futures for the major indices had been noticeably higher earlier this morning, but they have rolled over and now point to a relatively mixed start for the cash market.
The Dow Jones Industrial Average futures, which had been up more than 100 points, are up 67 points. The S&P 500 futures are flat and the Nasdaq 100 futures are down 15 points.
JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK), and PNC Financial Services (PNC) reported fourth quarter results today. Most of the reports were better than expected from an earnings standpoint, yet only BLK is indicated higher in pre-market action.
The lack of a bullish trading response to the reports in aggregate is probably serving as a signal to traders that a broader market pullback could soon be seen. On a related note, Facebook (FB) is weighing on sentiment. Its stock is indicated 4.8% lower as changes to its news feed have elicited concerns about the time users will spend on the social media platform.
There was some key data out this morning. The Consumer Price Index (CPI) and Retail Sales reports for December were both released at 8:30 a.m. ET. They didn't create any real alarm on the inflation or consumer spending fronts, yet the Treasury market had a noticeably adverse reaction in the immediate wake of their release.
The yield on the 2-yr note has jumped five basis points to 2.01% (it had reached 2.03%) while the yield on the 10-yr note has risen six basis points to 2.59%. That bump in rates helps explain a little of the roll that was witnessed in the futures market.
It looks like a knee-jerk reaction tied to some inflated inflation concerns that were driven by a hotter-than-expected 0.3% increase in core CPI, which excludes food and energy (Briefing.com consensus +0.2%). Total CPI was up just 0.1% (Briefing.com consensus +0.2%), having been held back by a 1.2% decline in the energy index.
With the December increases, total CPI was up 2.1% year-over-year, down from 2.2% for the 12 months ending in November. Core CPI was up 1.8%, which is up from 1.7% in November. Altogether, though, there is some stability in the core CPI reading, which has been up either 1.7% or 1.8% year-over-year for eight consecutive months.
The key takeaway from the report is that it won't change the Fed's prevailing expectation that three rate hikes are in order this year. That could be serving as a disruptive thought for traders who were likely inclined after yesterday's weaker than expected PPI report to think the Fed might think three rate hikes could be too many.
Separately, retail sales rose 0.4% in December, as expected, while sales excluding autos also increased 0.4%, as expected.
Not surprisingly, there was strength in nonstore retailers (+1.2%) and motor vehicle (+0.2%) sales. Department store sales declined 1.1% after a 0.3% increase in November.
The key takeaway from the report is that it should underpin the belief that favorable economic drivers continue to act as an expedient for increased consumer spending activity that will benefit Q4 GDP growth.