Aye yai yai. The market is reportedly pumped up this morning by some positive-sounding headlines related to trade matters. Sound familiar? It should because we were in this same parking spot at this time yesterday.
It all sounded good before it didn't and investors found reasons to sell into strength. There was a lot of attention yesterday to political bickering and headline rebuttals of the positive tone regarding trade relationships, but that wasn't the real problem for the market.
The real problem for the stock market was the underperformance of the financial and transportation sectors, which was evident when the market was rallying and which stood out like a sore thumb when it was selling off.
Those groups are key drivers of economic sentiment, so their continued underperformance was a real blow to investor sentiment that facilitated selling into strength on its own and even more so when the headline hubbub on trade, diplomatic relations, and politics sounded less peachy-keen.
Anyway, here we go again.
Market participants have been lulled back into the buying mix by remarks made by President Trump in an interview with Reuters. Specifically, he made it known that, if it served national security interests or helped advance the prospect of a trade deal with China getting done, he would get involved in the Department of Justice case against Huawei Technologies CFO, Meng Wanzhou.
On a related note, Ms. Meng was granted bail (CAD 10 million) by a Canadian court last night.
That news has also reportedly cheered the market, which is feeding on the hope that these latest developments could augur well for trade negotiations with China and ultimately the global economy.
The S&P futures are up 31 points and are trading 1.3% above fair value. The Nasdaq 100 futures are up 98 points and are trading 1.6% above fair value. The Dow Jones Industrial Average futures are up 300 points and are trading 1.4% above fair value.
The indication is clear: it will be a decidedly positive start for the cash market. What has been made clear in prior sessions, though, is that nothing can be taken for granted in that indication as a harbinger of how the rest of the day will unfold.
The market seems like it is eager to pick itself off the mat and fight back with a big, winning day, yet there is no question everyone is waiting to see if that bull market mentality shows up or the bear market mentality of selling into rallies persists.
The Consumer Price Index for November might have helped offer some bull market pull.
Total CPI was unchanged, as expected, while core CPI, which excludes food and energy, was up 0.2%, also as expected.
On the face of things, an in-line report should be greeted with a muted response (i.e., there were no surprises). In this case, though, the market could find some reason to take solace in the year-over-year changes.
Total CPI was up 2.2%, versus 2.5% in October, and core CPI was up 2.2%, versus 2.1% in October.
The key takeaway is that consumer inflation trends are not running away from the Federal Reserve's longer-run target, which should feed into the market's growing belief that the Federal Reserve has some data-based scope to take it easy after a December rate hike.
One person not taking it easy is UK Prime Minister May. She has been working feverishly on working out an acceptable Brexit deal, yet her efforts have been called into question by her own party, which is holding a no-confidence vote today on her leadership. The timing of the vote is terrible, yet press reports suggest Ms. May's leadership is likely to survive the vote.
That will be an interesting headline to keep tabs on for a market that is all about headline watching.