The stock market didn't get very far yesterday. The S&P 500 rose 0.1%, held back by a dastardly performance from IBM (IBM) following its earnings report. Today, the reins are still pulled back.
The S&P futures are down 10 points and are trading 0.4% below fair value. The Nasdaq 100 futures are down 34 points and the Dow Jones Industrial Average futures are down 103 points.
Those indications have evolved despite better than expected earnings results from the likes of American Express (AXP), Procter & Gamble (PG), W.W. Grainger (GWW), Alcoa (AA), Novartis (NVS), and Canadian Pacific (CP).
Note the wide berth of positive surprises. They canvass the financial, consumer staples, industrial, basic materials, and health care sectors.
That will be customary this earnings reporting season, yet one is left to wonder, given the low volume seen of late, if the good earnings news has already been accounted for and is being displaced by worries over the specter of peak earnings.
There was some discussion yesterday that the high dollar value of stock prices has curtailed investor participation in the market. We're not sold on that idea, because institutional investors know full well that valuation -- not price -- is the driver of buy/sell decisions.
To that end, a stock trading at $1000 has a higher dollar price than a stock trading at $100, but if the company with the $1000 stock price is earning $100 per share, it is less expensive than the stock trading at $100 if that company is only earning $5.00 per share.
Our overarching point is that the low volume seems to go hand-in-hand with a market that is recognizing an important shift in risk-reward dynamics as the Federal Reserve sounds content to walk along a tightening path.
Accordingly, market participants are thinking more deliberately about how willing they are to pay up for every dollar of earnings and they are recognizing that increased volatility is a byproduct of a seminal shift in monetary policy.
That is why this year's market is apt to be increasingly referred to as a stock picker's market.
The inference is that some individual stocks, like American Express, which is trading up 3.6% in pre-market action, will see nice moves, while the S&P 500 will behave in a more subdued fashion.
There was some good economic news this morning to get things going, but it hasn't moved the dial.
Initial claims for the week ending April 14 decreased by 1,000 to 232,000 (Briefing.com consensus 226,000). Continuing claims for the week ending April 7 decreased by 15,000 to 1.863 million.
The key takeaway from this report is that it covered the period in which the survey for the April employment report was conducted, so it will fuel expectations for a strong gain in nonfarm payrolls.
The Philadelphia Fed Index increased from 22.3 in March to 23.2 in April (Briefing.com consensus 21.0). A number above 0.0 reflects manufacturing growth in the region, yet the key takeaway from this report is that there was a notable uptick in the Prices Paid Index (from 42.6 to 56.4) which will pique interest about budding inflation pressure.
Similarly, so will oil prices (+1.2% to $69.26), which continue to rise on the back of a momentum trade, a weak dollar, and speculation that Saudi Arabia and Russia will work together to keep production in check.
That bump in prices has been a boon for the S&P 500 energy sector, which is up 11.0% over the last month. It is starting to catch the attention of the Treasury market, too, which is pivoting this morning to a curve steepening trade.
The yield on the 2-yr note is up one basis point to 2.43% while the yield on the 10-yr note is up four basis points to 2.91%.