Stock market bulls got exactly what they wanted on Tuesday -- a positive session following the reporting disappointment from Netflix (NFLX). That upside bias was a comforting indication for many that this bull market still has life left in it and that it may soon express some joie de vivre with a re-test of the record high the S&P 500 set in January.
That is no guarantee, yet it's fair to say that market sentiment was uplifted by the ability to shake off the Netflix disappointment in quick fashion and by the capability of the widely-owned FAANG stocks to maintain a leadership position in the face of ostensibly bad news from one of its own.
The general sigh of relief over yesterday's showing is best understood in the reported enthusiasm for the fact that Netflix dropped "only 5%" after being down as much as 14.1%.
It is true that the rebound in the broader market mirrored the intraday rebound in Netflix, yet it is also true that it wasn't a purely FAANG-led rebound.
The materials, health care, consumer staples, and financial sectors provided some positive underpinnings along with the information technology sector, as did Fed Chairman Powell's assured tone about economic conditions in his semiannual testimony before the Senate Banking Committee.
Mr. Powell will be testifying today at 10:00 a.m. ET before the House Financial Services Committee, yet the element of surprise there was probably squashed by yesterday's wide-ranging Q&A session and Mr. Powell's deflection of matters that are not under the purview of the Federal Reserve.
Today's early tone in the futures market is a fairly muted one despite a rash of better than expected earnings reports from the likes of United Continental (UAL), CSX Corp. (CSX), Morgan Stanley (MS), Textron (TXT), W.W. Grainger (GWW), Novartis (NVS), Abbott Labs (ABT), and U.S. Bancorp (USB).
Currently, the S&P futures are down two points and are trading slightly below fair value. The Nasdaq 100 futures are down 11 points and the Dow Jones Industrial Average futures are up three points.
Look for the transport stocks to exhibit relative strength. UAL and CSX both impressed with their guidance. Those stocks are up 4.1% and 4.0%, respectively, in pre-market action.
The energy stocks, on the other hand, will be facing an uphill battle as a surprising build in crude oil stockpiles reported by the American Petroleum Institute has oil prices ($67.59, -$0.49, -0.7%) on the defensive ahead of the EIA inventory report at 10:30 a.m. ET.
A strengthening dollar is also weighing on the dollar-denominated commodity. The U.S. Dollar Index is up 0.4% to 95.33 and is challenging the 52-week high it hit in late June. The euro and the British pound are both losing ground against the greenback this morning following some soft inflation data for June for both the UK and the eurozone.
The stronger dollar is gaining some stature as a possible disruptor given that it is a headwind for the earnings prospects for multinational companies and a blight on emerging markets with dollar-denominated debt.
Dollar strength, though, is still simmering as a background issue.
The current earnings strength is a foreground issue as is the conflicting imagery of a flattening yield curve. Both have created some push-and-pull trading action that has made it difficult at times to get a bead on the broader market.
The objective fact today, however, is that the S&P 500 is up 5.1% year-to-date before dividends, which is consistent with a bull market bias.
Separately, the Housing Starts and Building Permits Report for June was not consistent with a booming economy.
Housing starts declined 12.3% month-over-month to a seasonally adjusted annual rate of 1.173 million units (Briefing.com consensus 1.318 mln) while permits declined 2.2% to a seasonally adjusted annual rate of 1.273 mln (Briefing.com consensus 1.301 mln).
There was a decline in single-family starts (-9.1%); meanwhile, permits for single-family units were up a modest 0.8%.
The key takeaway from the report is that it reflects weakness at a time when there should be strength. The assumption embedded in the weak starts figure is that it likely reflects the difficulty builders are having finding labor, as well as the constraints they are facing with higher land, labor, and material costs.