The stock market closed last week on a high note, supported in part by some decent earnings results and news of an agreement to temporarily re-open the government with a continuing resolution for funding, absent any border security funding, through February 15.
The stock market will start today's session on a lower note, undercut by an earnings miss and disappointing FY19 guidance from Dow component Caterpillar (CAT) and reports that President Trump thinks there is a less than 50-50 chance of Congress reaching a border security funding deal by February 15, which could lead to another partial shutdown.
Currently, the S&P futures are down 15 points and are trading 0.6% below fair value. The Nasdaq 100 futures are down 39 points and are trading 0.6% below fair value. The Dow Jones Industrial Average futures are down 196 points and are trading 0.8% below fair value.
Those are the perfect headline excuses to rein in some of the enthusiasm that had the S&P 500 flirting Friday with its high for the year, which also left it up 13.7% since December 24.
Another prevailing excuse is the uncertainty in front of a host of some big-time happenings this week:
- There will be a huge swath of earnings reports, with roughly a quarter of the S&P 500, and nearly half of the Dow Jones Industrial Average, posting their December quarter results.
- There will be another vote in the UK Parliament on Prime Minister May's Brexit plan (Tuesday).
- There will be an FOMC policy meeting and a press conference conducted by Fed Chair Powell to explain the FOMC's thinking (Wednesday).
- U.S-China trade talks will resume this week in Washington, with China's Vice Premier Liu He leading the Chinese delegation (Wednesday-Thursday).
- The January Employment Situation Report and the January ISM Manufacturing Index will be released (Friday).
In brief, there isn't going to be a shortage of trading catalysts. One can also throw weather into the mix as a trading catalyst, as a good chunk of the nation deals with snow and forecasts for extremely cold temperatures this week courtesy of a polar vortex.
Market participants, therefore, can be forgiven for not showing a lot of buying conviction ahead of today's open.
The negative bias, however, is missing something. It's hard to put one's finger on it, yet we'll point to the Treasury market for some help.
Equity index futures are pointing to a decidedly lower open; meanwhile, Treasury yields across the curve are basically unchanged or slightly higher. In other words, there isn't a flight-to-safety taking place in face of the expected weakness for stocks.
What that suggests is the stock market is running headlong into a profit-taking effort more so than it is recoiling at this point in an anxious, risk-off move. It could eventually show some more nervousness, yet the calm, cool, and collected demeanor of the Treasury market right now is a tell that it's too early to make a really big deal out of this morning's downshift for the stock market.