The indication from the futures market is pretty clear this morning. It will be a down open for the major indices.
The S&P futures are down 15 points and are trading 0.6% below fair value. The Nasdaq 100 futures are down 43 points and are trading 0.7% below fair value. The Dow Jones Industrial Average futures are down 120 points and are trading 0.5% below fair value.
That broad landscape is reportedly dotted with growth concerns, which are springing up as a basis for selling with the S&P 500 trading in close proximity to its 200-day moving average (2742).
There has been a tentative effort the last few sessions to challenge that key technical level, but the push has stalled out at 2738-2739 the last few sessions. Incidentally, that tentative push has come on the back end of a rally that has seen the S&P 500 surge 16% from its December 24 low in the face of regular reports highlighting a slower global growth environment.
The inference is that the growth concerns were always present, yet they were overshadowed by a sense of relief that the U.S. economy -- the world's largest economy -- doesn't appear to be headed for a recession soon while the Federal Reserve doesn't appear to be headed for another rate hike soon.
The price action in the stock market has been rewarding, with the pricing out of some worst-case scenarios in the market's mind, yet one can't unreservedly accept that the market has been absolved of its growth concerns.
For a market trading at nearly 16x forward twelve-month earnings, it can't be when forward twelve-month earnings estimates continue to come down. Hence, after the rose-colored run from the December 24 low, the view ahead has gotten a little cloudier with valuation concerns re-entering the trading mix.
Those concerns tend to resonate more when a key technical level like the 200-day moving average is being tested. They may not necessarily stop an individual stock like Chipotle Mexican Grill (CMG), which is up 10% following its latest earnings report, yet they do act as a governor on the broader market.
The action in Chipotle is mostly a one-off situation. It has not carried market sentiment this morning anymore than the news has that BB&T (BBT) and SunTrust Banks (STI) are tying up in an all-stock merger of equals with a value of ~$66 billion.
Instead, the futures market is being carried away from recent highs by news that is feeding into the stream of consciousness that pertains to slower global growth. To that end, the Reserve Bank of India announced a surprise 25 basis points cut to 6.25% in its key lending rate; the Bank of England left its key rate unchanged at 0.75% and lowered its 2019 GDP growth outlook to 1.2% from 1.7%; and the EU Commission cuts its 2019 euro area GDP growth forecast to 1.3% from 1.9%.
Sovereign bond yields are coming down, including the 10-yr German bund, which sits at a lowly 0.13%, while the 10-yr U.S. Treasury yield is down three basis points to 2.67%.
The curious case of the 10-yr U.S. Treasury yield is that, at 2.67%, it is down seven basis points since December 24. So, while stocks have been partying, the Treasury market has been standing in the corner acting like a party pooper.
There wasn't anything in this morning's initial claims report to alter the Treasury market's mindset. The report wasn't bad; it just wasn't enough to have any real effect on the current mindset.
Initial claims for the week ending February 2 decreased by 19,000 to 234,000 (Briefing.com consensus 220,000). Continuing claims for the week ending January 26 decreased by 42,000 to 1.736 million.
The key takeaway is that the labor market is still looking pretty good, as initial claims remain low, yet outside headlines are stirring concerns that might not remain the prevailing trend.
In terms of the stock market, the price trend at the opening bell will be lower.