Wednesday didn't end well for stocks... or for bonds. Selling of the latter triggered a wave of late selling pressure in the former that took a positive day for the major indices and turned it into a negative one in a matter of FOMC minutes.
The minutes from the January 30-31 FOMC meeting were deemed by some to be "slightly dovish." We didn't necessarily see them that way given that they highlighted how further gradual policy firming would be appropriate.
The "slightly hawkish" thrust of that perspective is that it was formed before the release of the employment, CPI, and PPI reports for January and before Congress reached a two-year budget agreement that is going to inflate the deficit.
That perspective was also formed before the stock market upheaval this month, but notably, several Fed officials said afterwards that the sell-off didn't change their economic outlook or the thinking that further gradual rate increases would be appropriate.
Fittingly, there has been a litany of Fed speakers in the last 24 hours who pretty much said the same thing. St. Louis Fed President Bullard is the one headline exception, having expressed some concern about getting too restrictive with monetary policy at a time when inflation is still low. Mr. Bullard does not have a vote on this year's FOMC. New York Fed President Dudley, who does vote, will speak today at 10:00 a.m. ET.
In any event, the Treasury market, after taking a little time to deliberate over the minutes, concluded that they weren't exactly dovish. The 10-yr note yield climbed six basis points to 2.95% and the stock market cascaded lower as it did.
The S&P 500, which had been up as much as 1.2%, ended the day down 0.6% and closed below its 50-day simple moving average for the second straight day. The abrupt reversal and the loss of technical support compounded the late-day selling as weak-handed holders of long positions presumably checked out of those positions.
There was follow-through selling overnight in the futures market. At one juncture, the S&P 500 futures were down 16 points. That selling tide receded, however, and now the S&P futures are up 11 points and are trading 0.3% above fair value.
The Nasdaq 100 futures are up 30 points and the Dow Jones Industrial Average futures are up 59 points.
There wasn't a specific news catalyst driving the turnaround, although it has provided some moral support that the Treasury market has attempted to retrace its recent losses in front of today's $29 billion 7-yr note auction.
The 10-yr note yield has dropped three basis points to 2.91%.
Another encouraging initial claims report hasn't upended the Treasury market's rebound effort. Initial claims for the week ending February 17 decreased by 7,000 to 222,000 (Briefing.com consensus 233,000); meanwhile, continuing claims for the week ending February 10 decreased by 73,000 to 1.875 million.
The key takeaway from this report is that it covers the period in which the survey for the February employment report was completed. The low level of initial claims will most likely drive economists to estimate another decent-sized gain (200K+) for nonfarm payrolls.
For the time being, the elements are in place for a modestly higher start for the cash market. What comes after that start, though, is what market participants are interested in more.
Technically, the S&P 500 is in a vulnerable position and that is going to foster some tape watching to see if it can reclaim, and sustain, a posture above its 50-day simple moving average (2729). Failure to do so will contribute to the chatter that a retest of the February low might still be on the stock market's syllabus.