It's a new week and stock market bulls are hoping for a much better result following last week's 3.9% decline. For now, spirits are high as the S&P futures are up 28 points and trading 1.4% above fair value.
The opening move, then, is going to be an encouraging one. The question is, will it be a lasting one?
Everyone is waiting for the V-shaped recovery to unfold, yet it has been elusive as investors have been worried about economic and earnings growth decelerating.
That has caused a re-think of how much they are willing to pay up for every dollar of earnings, which in turn has left them inclined to sell into strength as they contemplate the notion that economic and earnings growth are as good as they are going to get.
The latter point aside, there is a bid in the stock market this morning that has been aided by the belief the market is due for a meaningful bounce from short-term oversold conditions.
That mentality has been helped along by Dow component IBM (IBM), which is planning to acquire Red Hat (RHT) for approximately $34 billion, or $190.00 per share, in cash and debt. The offer price represents a 63% premium over RHT's closing stock price on Friday.
IBM itself isn't helping the market. Its stock is indicated 4.0% lower in pre-market action. There is some understandable concern that IBM is overpaying to acquire revenue growth; nonetheless, the aggressive bid has set a nice tone early on for a stock market that is aiming to pick itself up off the mat.
Other items helping in that regard include Standard & Poor's maintaining its BBB investment-grade rating for Italy, reports China is considering a 50% cut in its tax on car purchases, and a positive bias in European markets.
The positive bias in Europe was bolstered by the Standard & Poor's ratings action on Italy. On a related European note, German Chancellor Merkel has announced today that she won't be seeking re-election as head of the CDU following disappointing results over the weekend for her party in a regional election. Her plan, however, is to remain Chancellor until 2021, after which time she will not pursue any other political posts.
In other developments, the Personal Income and Spending report for September was mixed.
Personal income increased 0.2% (Briefing.com consensus +0.4%) while personal spending jumped 0.4% (Briefing.com consensus +0.4%). The PCE Price Index was up 0.1% (Briefing.com consensus +0.1%) while the core PCE Price Index, which excludes food and energy, increased 0.2% (Briefing.com consensus +0.1%).
The key takeaway from the report is the recognition that PCE price inflation decelerated to 2.0% year-over-year from 2.2% in August. Core PCE price inflation held steady at 2.0%. The inflation readings are on par with the Federal Reserve's longer run target, yet they haven't moved to such a degree that they are going to alter the Federal Reserve's current policy stance, which involves an expectation for further gradual rate hikes.
The Treasury market has seen some selling across the curve, with most maturities seeing a two basis points increase in yield.