An encouraging start on Friday dissolved into a disappointing finish.. The stock market, however, looks ready this morning to give things another try.
Currently, the S&P futures are up 10 points and are trading 0.3% above fair value. The Nasdaq 100 futures are up 55 points and are trading 0.6% above fair value. The Dow Jones Industrial Average futures are up 78 points and are trading 0.3% above fair value.
Those indications belie the fact that things were looking less encouraging overnight. To wit, the S&P futures were down 17 points and trading as much as 0.7% below fair value.
The turnaround was true to the market's relatively fickle form these days. There will be special efforts to assign some news attribution for the turn in sentiment.
We can identify plausible-sounding catalysts, yet the main reason most likely is the underlying belief that the market -- and particularly the growth stocks -- is due for a more concerted buy-the-dip rally.
After all, the consumer discretionary sector, led by an 11.9% decline in Amazon.com (AMZN), is down 9.6% in October. The communication services sector, led by an 11.1% drop in Netflix (NFLX), is down 8.3%. The information technology sector, led by a 14.6% plunge in IBM (IBM), is down 7.1%.
IBM isn't a growth stock, yet readers should still catch the drift that this market has been weighed down heavily by the underperformance of these influential leadership sectors.
They are not alone in their pain and suffering. Most sectors have gotten caught up in the pullback, with the exception of the defensive-oriented utilities (+3.6%) and consumer staples (+1.3%) sectors.
In any event, it is never a stretch to suggest there is some buy-the-dip optimism wrapped up in a positive futures indication knowing how successful buy-the-dip efforts have turned out to be over the course of this bull market.
The faith in those efforts, ironically, is perhaps one of the biggest risks for this market. This market is expected to bounce and to get its bullish groove back, so when it fails to sustain a rebound try, like it did on Friday, it invites a pervasive sense of disappointment that turns the price-action tide.
An important element for any successful buy-the-dip effort, then, is the growth stocks showing some buy-the-dip resolve.
They have been afforded some rebound cushion by China's beaten-down market, which surged 4.1% today on the back of verbal intervention from Chinese officials aimed at restoring investor confidence. For example, President Xi, according to Bloomberg, vowed to provide unwavering support for non-state firms.
The Shanghai Composite's turnaround form is one of the primary catalysts being cited for the improved form here. European bourses have acted okay, too, expressing a modicum of relief that Moody's didn't lower Italy's debt rating to junk status.
Moody's dropped things a notch on Italy to Baa3 from Baa2, yet that is still an investment-grade rating. The Italian 10-yr note has responded in kind, with its yield dropping 10 basis points to 3.48% in a relief bid.
In corporate news, toy and games maker Hasbro (HAS) is down 5.7% after reporting some weaker than expected third quarter results. Conversely, consumer products company Kimberly-Clark (KMB) is up 1.7% after topping some relatively low expectations.
Those reports begin what is going to be an exceedingly busy week of earnings reporting from S&P 500 companies, so there will be a lot of interest in the days ahead in the reaction to that earnings news.
For now, the opening action in the stock market looks encouraging, yet all eyes will be watching the reaction to the encouraging start.