This day is shaping up to be a revealing one insomuch as it relates to the status of the rally off the December 24 low. By the end of today, market participants should have a good idea if that rally is breaking down or simply stopped yesterday for a tuneup.
We say that because there is a fundamental basis to have a good day today. Dow components IBM (IBM), Procter & Gamble (PG), and United Technologies (UTX) all exceeded consensus earnings estimates by a comfortable margin and provided relatively reassuring guidance.
IBM is up 7.0% in pre-market trading; UTX is up 4.9%; and PG is 4.3%.
For good measure, fellow Dow component Walmart (WMT) is up 1.2% after being upgraded to Overweight from Equal Weight at Morgan Stanley, and Comcast (CMCSA) is up 3.1% after beating earnings expectations, too.
These are some widely-held stocks with some upbeat indications for their stock prices. They are the basis for why the S&P futures are up 12 points, the Dow Jones Industrial Average futures are up 173 points, and the Nasdaq 100 futures are up 32 points.
Ah, but there is a bit of a headline twist. It isn't all constructive this morning.
Japan reported a 3.8% year-over-year decline in exports in December, which was the largest decline reportedly since October 2016. Separately, the Bank of Japan left its key interest rate unchanged at -0.1%, lowered its FY19 inflation forecast, and acknowledged economic risks are skewed to the downside.
Reuters, meanwhile, is reporting that President Trump doesn't plan to soften his position on China in order to make a trade deal, as he is pushing for structural reforms.
Notably, NEC Director Kudlow said late yesterday that enforcement capabilities are a vital component of any deal the U.S. might strike with China. That contention can't be ignored by the market, as it could end up being a sticking point for China, which is unlikely to relish the thought of the U.S. having the ability to make regular checkups on China's trade actions and having the further ability to enforce penalties of some kind when it deems China is breaking the rules.
The point is that the prominent trade headline today isn't a warm and fuzzy one; moreover, Japan's export decline speaks to the global growth slowdown, yet that hasn't derailed the futures market, which seems to be keying on the earnings news.
That news will produce a higher start for the major indices. The question is, will the early strength be sold into or will it be sustained on the belief that yesterday's weakness was nothing more than an overdue pullback for an overbought market?
The answer that unfolds is what we are driving at with the thought that today's price action will be revealing as a gauge of where this market stands at the moment.