The stock market hasn't done much at all this week. It will do something at today's open, though, and that something is head higher in a noticeable way.
Currently, the S&P futures are up 16 points and are trading 0.6% above fair value. The Nasdaq 100 futures are up 46 points, leaving them 0.7% above fair value, and the Dow Jones Industrial Average futures are up 161 points, which places them 0.6% above fair value.
What happened between yesterday and today? For starters, yesterday marked the end of what had been a very good month for the stock market, whereas today is the first trading day of a new month, which often invites new inflows.
Ostensibly, then, there is a fund flow bias to the upside this morning, which has been helped along by some headline catalysts that would seemingly encourage new money being put to work:
- Bloomberg is reporting that the U.S. and China are in the process of preparing a document that lays out the provisions of a trade deal that could be signed perhaps as early as mid-March.
- China's Caixin Manufacturing PMI for February was better than expected at 49.9 (although it would be remiss not to point out that a number below 50.0 still connotes contraction).
- MSCI announced it is going to increase the weight of China 'A' shares in the MSCI Indexes by increasing the inclusion factor in three steps from 5% to 20%.
- Fed Chair Powell kept the good central bank vibes going last night with an acknowledgment that productivity has moved up, providing room for wages to increase without adding to inflation pressures.
We suppose one could include the Personal Income and Spending report for December and the Personal Income data for January, too, as a basis for the positive bias.
The focal point in that respect boils down to two factors: (1) the PCE Price Index, which is the Fed's preferred inflation gauge, was up just 1.7% year-over-year in December, down from 1.8% in November and below the Fed's longer-run target of 2.0% and (2) personal income in January fell 0.1%, which will leave the Fed in its patient mindset, waiting to see if that bleeds through to weaker spending activity in the first quarter.
Frankly, this morning's data is challenging to interpret. Personal income in December was up 1.0% while real personal spending declined 0.6% and the personal savings rate jumped to 7.6% from 6.1%.
On the surface of things, one could argue that the stock market volatility and talk of recession in December drove consumers to save more and spend less, yet the Q4 GDP report out yesterday, which incorporates this data, seemingly refutes that notion.
The 0.1% decline in personal income in January, meanwhile, was fueled by a 1.6% decline in proprietors' income and a 3.4% drop in personal income receipts on assets that was led by a 6.3% decline in personal dividend income.
The key takeaway from the report is that there is a fair amount of signaling noise that will likely prompt the market to dismiss it and encourage the Fed to stick by a wait-and-see mindset, buying more time for the stock market to exist without fear of a Fed rate hike.
The ISM Manufacturing Index for February (Briefing.com consensus 56.0; Prior 56.6) and the final University of Michigan Consumer Sentiment Index for February (Briefing.com consensus 95.6; Prior 95.5) will be released at 10:00 a.m. ET.
That data will be looked at closely, as will moves in individual stocks like Gap, Inc. (GPS), which is up 20% after announcing a plan to split into two, separate publicly-traded companies, and Tesla (TSLA), which is down 4% after CEO Elon Musk said he didn't think the company would be profitable in the first quarter.
Market participants will also be keeping a close eye on whether the S&P 500 can clear resistance at the 2800 level on a closing basis. It is poised to peek its head above that mark in early trading with fund flows and headline flows pushing it in a positive direction.