There was little mistaking Wednesday that the stock market viewed the midterm election results in a positive light, comforted it seems primarily by the consideration that a split Congress won't be able to undermine existing market-friendly policies, namely the tax cuts and deregulation efforts.
When things got going, other trading thoughts entered the mix that exacerbated the gains. In particular, there was a fear of missing out on a potential V-Shaped rally into year end that is fueled by performance chasing, seasonality, and corporate share buyback activity.
Market participants continued to hold out hope, too, that the U.S. trade battle with China might take a turn for the better when President Trump and President Xi meet later this month at the G20 Leaders' Summit.
In brief, it was a very good day for the bulls on Wednesday. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all gained at least 2.0%, supported by gains in all 11 economic sectors.
Today is poised to start on a more subdued note. The S&P futures are down 10 points and are trading 0.2% below fair value. The Nasdaq 100 futures are down 40 points and are trading 0.4% below fair value. The Dow Jones Industrial Average futures are down 57 points and are trading 0.1% below fair value.
Some disappointing guidance out of Wynn Resorts (WYNN), Square (SQ), Perrigo (PRGO), and Qualcomm (QCOM), the latter of which was attributed to lost business from Apple (AAPL) and some weakness in China, has tempered some of yesterday's strength and is weighing on the broader market.
By and large, though, the pullback in the futures market is not surprising given the scope of yesterday's gains and some chatter that they were overdone for an election outcome that was mostly expected.
There is also some reorientation this morning around the important idea that rising interest rates should have more impact on stock prices than legislative dealings in DC that are going to be in limbo until the new split Congress is seated in January.
This reorientation relates to today's interest rate decision by the Federal Open Market Committee (FOMC), which will be announced at 2:00 p.m. ET.
The market is taking for granted that there won't be a rate hike today. That's a pretty safe bet based on the fed funds futures market, which is showing only a 7.2% probability of a rate hike today.
Nevertheless, the policy directive from the FOMC is apt to keep expectations for a December rate hike intact. That wouldn't be a surprise, yet it will be a timely reminder that monetary policy is going to be a headwind for the market so long as the FOMC leaves the impression that it is operating with a tightening bias.
The latest jobless claims report is supportive of the rate-hike bias. That is the key takeaway from it.
Initial claims for the week ending November 3 decreased by 1,000 to 214,000 (Briefing.com consensus 213,000) while continuing claims for the week ending October 27 decreased by 8,000 to 1.623 million.
Initial claims have held below 300,000 for 192 straight weeks; meanwhile, the continuing claims level is the lowest since July 28, 1973, which is a reflection of a tight labor market that has the Federal Reserve's close attention.