It is a prerequisite before the open to keep tabs on the futures market, which provides the cues for how the cash market will start the regular trading session. The cues this morning point to a slightly lower open for the major indices.
The S&P futures are down four points, the Nasdaq 100 futures are down 14 points, and the Dow Jones Industrial Average futures are down 13 points.
That's an early nod to some expected profit-taking activity following yet another gain for the major indices on Tuesday. The Dow Jones Industrial Average, which could be mistaken lately for the Nasdaq Composite, led the way on the back of Caterpillar (CAT) and 3M (MMM).
Including yesterday's gain, the Dow Jones Industrial Average is up 5.1% over the last month versus a 3.6% increase for the Nasdaq Composite, a 3.3% increase for the Russell 2000, and a 2.9% increase for the S&P 500.
It's all good, yet it has been especially good for the bluest of blue-chip averages.
Boeing (BA), Visa (V), and Coca-Cola (KO) did their part to help the Dow's cause this morning, as each company topped consensus earnings estimates for the September quarter and provided reassuring guidance.
Still, the magnitude of recent gains has quelled some of the enthusiasm for those reports and has led to some profit-taking interest in the early going that is weighing on the futures market.
Other sources of restraint include creeping concerns about the ability to get a tax deal done due to infighting in the GOP ranks, some chatter that President Trump might be inclined to nominate the more hawkish-minded John Taylor as Fed Chair, and rising bond yields.
The 10-yr note yield closed Tuesday at its highest level since May (2.41%) and it has continued to back up this morning, taking out resistance at 2.42%. The yield currently sits at 2.47%, which leaves it just below where it started the year (2.48%) and up 42 basis points since September 11.
The stock market has taken the move up in rates in stride to this point, identifying it as a vote of confidence in the reflation trade, yet the takeout of technical resistance opens the door to a test of 2.50% (and perhaps higher) that would create some emerging competitive headwinds for a number of highly-valued stocks.
It is a trading dynamic that is going to capture more attention as a potential spoiler of the run the stock market has been on since late August and it will be watched carefully following Thursday's ECB meeting, which is expected by many to produce a QE tapering announcement.
The Durable Goods Orders report for September is working to feed some of the bearish appetite in the Treasury market, too, as it certainly contributed to the reflation narrative.
Durable goods orders increased 2.2% (Briefing.com consensus +1.3%) on the heels of an upwardly revised 2.0% increase (from +1.7%) in August. Excluding transportation, orders jumped 0.7% (Briefing.com consensus +0.5%) versus an upwardly revised 0.7% increase (from +0.2%) for August.
The key takeaway from the report is that it is hard data that corroborates the upbeat readings in the soft manufacturing surveys; moreover, it is going to lead to stronger Q3 GDP forecasts given the 0.7% increase in shipments of nondefense capital goods excluding aircraft, which followed an upwardly revised 1.2% increase (from +0.7%) for August.
It is clear, too, that business spending is picking up as new orders for nondefense capital goods excluding aircraft increased 1.3% for the third straight month.
This good economic news led to some further weakening at the back end of the Treasury curve in what has been a curve-steepening trade. Once again, that should bode well for the banks and the financial sector, which is apt to act as an offset for weakness in other parts of the stock market.
To be fair, that weakness isn't acute by any means. It's just that buying interest is a little dull around the edges right now since so much good news has been priced in already amid the persistence of low interest rates.