The S&P 500 had a big non-move yesterday, having finished virtually unchanged on the back of a 1.2% gain on Monday. The lack of selling interest following Monday's move -- and a 22% gain since the December 24 low -- was a sign of the bullish times that are projected to keep rolling at today's open.
Currently, the S&P 500 futures are up 17 points, which places them 0.4% above fair value. The Nasdaq 100 futures are up 48 points and the Dow Jones Industrial Average futures are up 111 points. That places them 0.6% and 0.3%, respectively, above fair value.
There are remnants of Monday's trading kicking in, namely some enthusiasm for the idea that global growth may be on the cusp of improving. That view has flowed from a batch of better than expected non-manufacturing PMI readings for March out of China and Europe.
Ironically, this view clashes with a premise put forth by Deutsche Bank in a downgrade of Dow component Caterpillar (CAT) to Hold from Buy, which the firm linked in part to the view that global synchronized growth has "collapsed" and that Europe is slowing more than expected.
That downgrade has shares of CAT down 0.5% in pre-market action, yet it hasn't felled the broader market by any means.
An FT report suggesting a trade deal between the U.S. and China is roughly 90% done has left the stock market in good spirits, even though the other 10% that has not been done reportedly involves some of the biggest sticking points like enforcement mechanisms and forced technology transfers.
The trade talks between high-ranking U.S. and Chinese trade officials are resuming today in Washington.
Clearly, the stock market continues to look at those negotiations with a glass-is-half-full mentality. Come to think of it, the stock market is looking at most things right now with a glass-is-half-full mentality.
Its perspective on earnings growth is a perfect case in point.
First quarter earnings estimates have been revised down repeatedly. They are currently projected to decline 3.9%, according to FactSet. The stock market, however, is eyeing an acceleration in earnings growth in the back half of the year, which is a foundational view helping to fuel a 14.4% year-to-date gain in the S&P 500.
This year's rally effort, however, has been built on the bedrock of easy monetary policy. In that very important respect, the glass is completely full in the stock market's mind because the median projection for interest rate hikes this year is completely empty now in the Fed's mind.
The stock market is going to open higher, having shrugged off a weaker-than-expected ADP Employment Change report for March. The latter showed an estimated 129,000 positions were added to private-sector payrolls (Briefing.com consensus 178,000) following an upwardly revised 197,000 (from 183,000) for February.
The response to the report has been muted for a few reasons. First, the report wasn't terrible, as payroll growth exceeded 100,000. Second, market participants are cognizant the more comprehensive Employment Situation report is going to be released on Friday.
The ISM Non-Manufacturing report for March (Briefing.com consensus 57.9%; Prior 59.7%) will be released later today at 10:00 a.m. ET. It will be weaker than the prior month's reading, according to our consensus estimate, so any strong reaction by the market will be related to how far the actual number deviates (up or down) from that estimate.
For now, the stock market isn't deviating from its bullish course, but the Treasury market is. The yield on the 10-yr note is up four basis points to 2.52% after hitting 2.38% on March 27.