The futures market is looking good this morning -- too good perhaps given that the boost is rooted in a lot of talk and little action. That view notwithstanding, the cash market is being primed nicely for a higher start.
Currently, the S&P futures are up 26 points and are trading 0.7% above fair value. The Nasdaq 100 futures are up 88 points and are trading 0.8% above fair value. The Dow Jones Industrial Average futures are up 238 points and are trading 0.7% above fair value.
Those indications have blossomed despite Dow component Intel (INTC) disappointing investors with a fourth quarter report that was light on revenues and replete with first quarter EPS and revenue guidance that was well below analysts' average estimates. Shares of INTC are indicated 6.3% lower.
Intel's problems, though, are being treated mostly as Intel's problems, never mind that its revenue warning was tied to intensifying trade and macro concerns, especially in China.
Starbucks (SBUX) and Western Digital (WDC) for their part seemed to placate investors with their results and commentary that was deemed better than expected -- or better than feared depending on one's perspective. In any case, SBUX and WDC are trading up 3.7% and 9.9%, respectively, in pre-market action.
Those moves have been a nice distraction from Intel's disappointment, yet the truth of the futures matter is that the early indication doesn't have much to do with the earnings news.
It has more to do (and some might say everything to do) with a report in The Wall Street Journal calling attention to the idea that the Federal Reserve may be getting close to the end of its balance sheet normalization effort, implying that the Fed will maintain a larger-sized balance sheet than it expected to when it began its quantitative tightening effort.
The article points out that this shift, should it happen, would be related to a belief that a higher level of reserves is needed in the banking system, as opposed to a belief the economy needs more stimulus.
The rationale isn't particularly pertinent for the stock market today. What's registering in the stock market's mind is simply the notion that the de facto tightening that results from normalizing the balance sheet could soon be over.
That happy thought has created a happy buzz that is underpinning the futures trade. At the same time, there is chatter around the edges of some important matters that is helping the market climb a wall of worry on the pretense that some of its worries may soon be less worrisome.
- Treasury Secretary Mnuchin reportedly said the U.S. is making progress with China trade talks, countering Commerce Secretary Ross's dark characterization yesterday that the U.S. and China are "miles and miles" from a resolution.
- The Democratic Union Party is said to be willing to support Prime Minister May's Brexit plan, assuming there is a specific time limit on the Irish backstop.
- Negotiations in the Senate to end the shutdown are said to be picking up after two failed votes yesterday.
Talk is cheap on these important matters, yet the semblance of a more market-friendly narrative is fueling continued bargain-hunting efforts that will at least make for a very nice start to today's session and perhaps allow the market to close out the week on a high note.