The seesaw ride is set to continue today. This time it will be going up. The S&P futures are up 11 points and are trading 0.5% above fair value. The Nasdaq 100 futures are up 35 points and the Dow Jones Industrial Average futures are up 194 points.
Why has sentiment shifted from Wednesday when the market traded lower, which was a shift from Tuesday when the market traded higher, which was a shift from Monday when the market traded lower?
The answer is rooted primarily in the news that lower-level (yes, lower level) Chinese and U.S. officials will hold fresh trade talks in Washington in late August. Walmart (WMT), however, also deserves some props for the expected pop, as it duly impressed with better than expected second quarter earnings news and raised its full-year guidance.
Shares of WMT are trading up 10.3%, and while that move is going to help the Dow, the S&P 500, and both the consumer staples and consumer discretionary sectors, the fact of the matter is that the vast majority of the gains in the index futures were logged before Walmart's results were released.
That tells us a few things: (1) The market is bothered more than many pundits suggest about a full-fledged trade war with China breaking out. If it wasn't, the reaction to this positive-sounding headline would be muted. (2) The trade issue with China matters more than the currency issue with Turkey, which has gotten nary a mention amid the headline fixation on these new trade talks.
Turkey is yesterday's news (for now anyway).
All in all, it is a busy news morning. Some rightful attention is being paid to Cisco's (CSCO) better than expected earnings results and fiscal first quarter guidance, and J.C. Penney's (JCP) abysmal second quarter results and full-year guidance. Shares of CSCO are up 6.0%. Shares of JCP are down 21.6%.
In turn, there was a slate of economic data released at 8:30 a.m. ET. Initial claims and continuing claims were encouraging; housing starts and building permits were mixed; and the Philadelphia Fed Index was disappointing.
- Initial claims for the week ending August 11 decreased by 2,000 to 212,000 (Briefing.com consensus 217,000). Continuing claims for the week ending August 4 decreased by 39,000 to 1.721 million.
- The key takeaway from the report is that low initial claims activity is consistent with a tight labor market.
- Housing starts increased 0.9% in July to a seasonally adjusted annual rate of 1.168 million (Briefing.com consensus 1.256 mln) following a downwardly revised 1.158 million (from 1.173 mln) for June. Building permits increased 1.5% to 1.311 million (Briefing.com consensus 1.316 mln) from an upwardly revised 1.292 million (from 1.273 mln) for June.
- The key takeaway from the report is the recognition that single-family starts rose just 0.9% to 862,000, which is a modest pace that likely reflects the headwinds builders are facing with higher costs for materials, labor, and land.
- The Philadelphia Fed Index dropped to 11.9 in August (Briefing.com consensus 23.0) from 25.7 in July. That is the lowest reading in 21 months.
- The key takeaway from the report is that there was an uptick in the diffusion index for future general activity following four straight declines, as more than half 50% of firms expect increases in activity over the next six months.
Market participants for their part can reasonably expect increases in buying activity at the opening bell thanks mostly to the headlines surrounding trade and Walmart that should get the S&P 500 seesaw back to level ground for the week.