The stock market and the bond market enjoyed what they heard from the Fed on Wednesday and some of that joy looks to be carrying over today. The S&P futures are up three points and are trading 0.1% above fair value.
Frankly, we're a little surprised the opening indication isn't more robust.
The stock market pretty much got everything it wanted out of the Fed yesterday: (1) a hike of 25 basis points that was attributed to an economy that is doing well (2) a dot-plot sticking with a projection that there will be three rate hikes this year (3) a reiteration that the committee still thinks a gradual path of normalization in the fed funds rate will be warranted and (4) an impression that the Fed isn't in a hurry to reduce its balance sheet.
It was the "benevolent rate hike" we alluded to in this column yesterday. The stock market responded in kind with a nearly broad-based rally after the decision. The financial sector underperformed in a noticeable fashion, though, pinched by the flattening yield curve and the Fed's benevolent rate-hike tone.
We'll be interested to see how the financial sector acts today. If it continues to exhibit relative weakness, chances are the broader market will act with some restraint as well.
That point aside, there are some headline drivers this morning that one might have expected to prompt some more concerted buying action in the futures market:
- The Dutch election result didn't favor the populist party as much as feared, which has tapered some of the concern about a possible populist victory by Marine Le Pen in the upcoming French election
- Oil prices (+$0.24, or 0.5%, to $49.12) continue to rebound on the back of favorable inventory data
- Oracle (ORCL) topped third quarter consensus estimates and provided reassuring fourth quarter guidance
- President Trump said in a FOX News interview that he doesn't think it's fair that capital gains and wages are taxed at the same rate
- The Bank of Japan, the Bank of England, the Swiss National Bank, and the Norges Bank all left their key policy rates unchanged; and
- This morning's economic data was for the most part solid
In terms of the data, housing starts jumped 3.0% in February to a seasonally adjusted annual rate of 1.288 million (Briefing.com consensus 1.260 mln). Building permits, meanwhile, decreased 6.2% to a seasonally adjusted annual rate of 1.213 million.
The key takeaway from the report is that there was strength in the single-family sector for both starts and permits. Single-family starts increased 6.5% to 872,000 while single-family permits increased 3.1% to 832,000.
The weekly initial claims report showed a continuation of solid trends, with initial claims decreasing by 2,000 for the week ending March 11 to 241,000 (Briefing.com consensus 242,000). Continuing claims for the week ending March 4 dropped by 30,000 to 2.030 million.
The key takeaway from this report is that initial claims continue to run at low levels that point to the likelihood of healthy nonfarm payroll gains in the Employment Situation Report.
There was a slowdown in the Philadelphia Fed Index, which dropped from 43.3 to 32.8 (Briefing.com consensus 25.0). That won't bother anyone much since a slowdown from the tremendous strength in February was expected; moreover, the index has been positive for eight consecutive months and remains comfortably above the 0.0 dividing line between expansion and contraction.
The S&P futures for their part also remain above the 0.0 dividing line between gains and losses. It's not the most comfortable cushion, but it's a cushion nonetheless that suggests there will be a padding of Wednesday's gains when the opening bell rings.