The stock market stumbled Monday, having gotten tripped up at its November high and then falling flat with a test of support at the 2800 level.
From our vantage point, it was very much a technical trade on Monday, yet that explanation never suffices fully for a market that is always searching for a news-driven reason to explain the price action.
Accordingly, there was a reach to blame the weaker than expected Construction Spending report for December for catalyzing the reversal. At the same time, when the market was rolling over, there was an effort to blame the same reason that had been cited for why the market opened on an upbeat note on Monday: news of a potential U.S.-China trade deal.
The latter had market participants feeling good and market commentators highlighting it before the open as a reason why there was a positive bias. When the market rolled over, though, there was a lot of Monday morning quarterbacking with assertions that a trade deal has been priced in already and/or that market participants didn't like the lack of clarity surrounding structural trade issues and enforcement mechanisms.
In other words, the tenor of the commentary matched the tenor of the price action, which is to say really that the news-driven explanations were convenient more so than they were wholly credible.
And, it can't be forgotten that yesterday's high for the S&P 500 (2816.88) left it up 19.8% from its December 24 low, leaving the default explanation in place that the market is quite simply overextended on a short-term basis and due for a pullback; hence, there was an almost immediate stoppage in the buying action with the re-test of the November high.
Today, the futures for the major indices are trading modestly higher, yet all are within close proximity to fair value, which suggests the cash market will open on a flattish note.
Some supportive elements include better than expected earnings results and guidance from retailers Target (TGT) and Kohl's (KSS), upward revisions to Services PMI numbers for February out of the eurozone and UK, and a contention from Boston Fed President Rosengren (FOMC voter) that it may take several meetings to have a clear read on whether economic risks are becoming a reality.
That's a tidy way for Mr. Rosengren to say that it is unlikely there will be a rate hike from the Fed anytime soon. The fed funds futures market is already on board with that perspective, but nonetheless, the vision of a patient Fed is the gift that keeps on giving in 2019.
In other developments, China lowered the bar on its 2019 GDP growth forecast to 6.0%-6.5% from 6.5% and announced some tax cuts in a bid to contend with a "tough economic battle ahead." That didn't unnerve Chinese investors, though. The Shanghai Composite jumped 0.9%, bringing its year-to-date gain to 22.5% as investors there continue to bank on the prospect of a trade deal getting done with the U.S.
Some headlines today suggest a truly meaningful trade deal isn't necessarily a done deal as questions about enforcement policies and agreements on structural trade differences remain. Such reports are holding back buying interest after the market's huge rally ran it into a wall of technical resistance in Monday's trade.