It's going to be a negative start for the cash market. The S&P futures are down 30 points and are trading 1.0% below fair value. The Nasdaq 100 futures are down 101 points and the Dow Jones Industrial Average futures are down 288 points, which has them 1.3% and 1.0% below fair value, respectively.
The quick and easy explanation for the weakness rests on the notion that the Federal Reserve raised the fed funds rate and sounded hawkish on Wednesday. That's true, but that wasn't a surprise, and to be fair, the Federal Reserve isn't in full-on attack mode.
Nevertheless, a stock market sporting a full valuation may not like the idea that the Federal Reserve is inclined to keep raising the fed funds rate, yet it knew that was the case before yesterday's meeting was even held.
The Fed's decision, and Fed Chairman Powell's explanation of the decision and projections, then, were in-line with what we deemed to be a baseline scenario for yesterday's FOMC outcome.
In other words, the Federal Reserve is not to blame fully for this morning's negative bias. It's a factor on the margin, but other forces are largely to blame, namely:
- The news that President Trump is going to announce a plan today that levies tariffs (estimates range from $30 billion to $60 billion) on a wide range of imports from China. This news is stoking concerns about a retaliatory response from China and the threat of a trade war.
- Signs of a deceleration in global growth momentum as flash PMI readings for March in the eurozone and Japan were weaker than February. This is creating doubts about stock prices having moved too far, too fast, on the back of upbeat growth expectations.
- Renewed weakness in Facebook (FB) following an unsatisfying apology from CEO Mark Zuckerberg regarding the data breach by Cambridge Analytica
- The poor technical posture of the S&P 500, which has been unable to reclaim a position above its 50-day simple moving average (2747) after a breach on Monday
- The loss of leadership from the widely-held information technology sector; and
- A risk-off mindset that is feeding a broad-based inclination to take some money off the stock table
In other developments, the Bank of England left its key policy rate unchanged at 0.50%, as expected; however, it wasn't a unanimous vote. There were two dissents, which was a surprise and a tacit signal that a rate hike could soon be seen in the UK.
The initial claims report was its typical good self.
Initial claims for the week ending March 17 increased by 3,000 to 229,000 (Briefing.com consensus 225,000). Continuing claims for the week ending March 10, meanwhile, decreased by 57,000 to 1.828 million, which is the lowest level since December 29, 1973.
The key takeaway from this report is that it covered the period in which the survey for the March employment report was taken, so the low level of initial claims will feed estimates for another strong gain in nonfarm payrolls.
Blame the Fed all you want for what is going to be a decidedly lower start, but you can't use just one pointer finger today. Multiple pointer fingers are necessary, because there are multiple reasons why the stock market is in a funk right now.