The month of January is in the rearview mirror now -- and what a month it was! Things might have ended on a skittish note, yet the statistical fact of the matter is that the S&P 500 increased 5.6% in January. That was the 11th best start to a year since 1950.
According to the Stock Trader's Almanac, there has never been a down year for the stock market since 1950 when the S&P 500 has gained at least 4.0% in January. Furthermore, the average full-year price gain has been 22% in a year when the S&P 500 has advanced at least 4.0%, with a range of 2.0% to 38.1%.
That's an encouraging standard for the bulls, but since the future is unpredictable, one still can't assume it's a guarantee that history will repeat itself this year.
The best start to a year since 1950 was January 1987 when the S&P 500 surged 13.2%. For the record, the S&P 500 ended 1987 up just 2.0%. Obviously, that was still a full-year price gain, but obviously, things didn't go so swimmingly after January, especially in October when the stock market was drowning in a crash.
This year will have its own narrative -- for better or worse -- when it is all said and done. One plot line that will be constant through the year is the behavior of interest rates and how they dictate the stock market's mood.
Market rates are rising, and to this point, that has been accepted as a reflection of the optimism in the growth outlook, which has been an expedient for rotating capital out of bonds and into stocks. However, with stock market valuations on the high side, rising market rates hold the potential to be a spoiler.
Yesterday, the FOMC essentially reinforced the prevailing expectation that another rate hike is likely at the March meeting. That wasn't a surprise, but nonetheless, it was an impression that continued to keep a lid on buying interest in the Treasury market.
The yield on the 2-yr Treasury note stands at 2.14% while the yield on the 10-yr Treasury note sits at 2.73%. The 10-yr German bund, meanwhile, is up to 0.71% after starting the year at 0.47%.
It's debatable how much the interest rate factor is factoring in to the weakness in the futures market this morning, especially since the futures market was in better shape earlier when market rates were also up. Alas, without a specific news catalyst, there has been a noticeable roll in the futures market, which had been flattish.
Currently, the S&P futures are down eight points, the Nasdaq 100 futures are down 47 points, and the Dow Jones Industrial Average futures are down 146 points. Those indications aren't expected to translate into big percentage declines at the open, yet it is reminiscent of some of the hesitancy about buying into the stock market at this point that has been creating some volatility the past few days.
The earnings results from Facebook (FB), Microsoft (MSFT), Qualcomm (QCOM), AT&T (T), DowDuPont (DWDP), and UPS (UPS), all of which exceeded consensus estimates, haven't helped drive things higher.
That could be part of the problem, especially with Apple (AAPL), Amazon.com (AMZN), and Alphabet (GOOG) set to report after tonight's close.
The thinking being that the lack of a bullish response to generally good earnings news suggests it was priced in already.
Separately, the weak Productivity report for the fourth quarter was a downer. The preliminary estimate showed productivity declining 0.1% (Briefing.com consensus +1.0%) and unit labor costs jumping 2.0% (Briefing.com consensus +1.0%). That was the weakest productivity number since the first quarter of 2016.
The key takeaway from this report is that it will feed into the market's burgeoning concerns about rising inflation and trigger some added concerns about economic growth not living up to the market's high expectations.
One mitigating factor is that this is a preliminary fourth quarter number, meaning it is subject to revision. Also, there is apt to be some allowance for the thought that the impact of the Tax Act will lead to better productivity in coming quarters.
For the time being, though, there is no getting around the fact that fourth quarter productivity was very disappointing.
The initial claims report will be glossed over, primarily because it didn't produce any major surprises and also because it has been lost in the headline mix relative to the Productivity report.
Initial claims for the week ending January 27 decreased by 1,000 to 230,000 (Briefing.com consensus 238,000) while continuing claims for the week ending January 20 increased by 13,000 to 1.953 million.
The ISM Index for January (Briefing.com consensus 58.5) will be released at 10:00 a.m. ET along with the Construction Spending report for December (Briefing.com consensus +0.3%). Auto and truck sales for January will be released throughout the day.
There is a lot to chew on this morning, and at the very least, the month of February looks poised to open on a downward note.