The stock market didn't really party too hard after yesterday's FOMC announcement, yet it appears to have a mental hangover this morning that has contributed to a groggy trade in the futures market.
Currently, the S&P futures are down one point, the Nasdaq 100 futures are down one point, and the Dow Jones Industrial Average futures are down nine points, showing little reaction to corporate news, economic data, and an S&P downgrade of China's credit rating to A+ from AA- due to a prolonged period of credit growth that S&P believes has increased economic and financial risks.
Those indications suggest there will be little change for the major indices when the opening bell rings.
The "stall factor" could very well be a tug-of-war in traders' minds as to whether they should chase stocks higher into quarter end, knowing they have shown a remarkable resilience to selling interest, or take some money off the table into quarter end, knowing that sizable gains this quarter have contributed to stretched valuations.
Thus far, the valuation argument has been dismissed in many circles as a tired one because there has been a lot of vitality in the persistence of low interest rates.
The signalling from the Federal Reserve on Wednesday is that there is apt to be an upward bias in the policy rate, assuming the economy evolves as the Federal Reserve expects. Hence, the dot plot continued to signal an expectation of three rate hikes for 2017 and three rate hikes for 2018.
Notably, the median estimate for the longer-run fed funds rate was reduced to 2.8% from 3.0%. That is much higher relative to the current fed funds target range of 1.00% to 1.25%, yet it is a subtle reminder that the Federal Reserve is a little closer to hitting the neutral rate (neither expansionary or contractionary) than market participants thought following the June meeting.
The latter could be construed as a dovish development, but the market's enthusiasm for the step down in the projected longer run fed funds rate has been tempered by the understanding that a lot can still happen in the "long run" to alter that course, with the Federal Reserve reducing the size of its balance sheet and some element of tax reform possibly being in the mix.
On a related note, there has been a tempered response to this morning's economic data.
Initial claims for the week ending September 16 produced a big surprise, checking in at 259,000 (Briefing.com consensus 310,000), a decrease of 23,000 from the previous week's revised level. Continuing claims for the week ending September 9 increased by 44,000 to 1.98 million.
The surprise is that initial claims, which were said to be impacted by Hurricanes Harvey and Irma, weren't much higher. Following the Hurricane Harvey, initial claims jumped to 298,000, so it was assumed the combined impact of Harvey and Irma would push initial claims above 300,000 for the first time in 133 weeks.
That didn't happen. The key takeaway, then, is that employers appear to be reluctant to cut their payrolls in a tight labor market. Texas, incidentally, saw the largest decrease in initial claims (-11,764) for the week ending September 9.
Separately, the Philadelphia Fed Index jumped to 23.8 in September (Briefing.com consensus 17.1) from 18.9 in August, led by solid upticks in the indexes for new orders, shipments, and prices paid.
Notwithstanding the upside surprises in the economic data, the Treasury market continues to sport modest gains across the curve. The yield on the benchmark 10-yr note is down two basis points to 2.26%.