Selling into strength? Yeah, that didn't happen yesterday. The stock market started strong and stayed strong. Reportedly, participants were enthused by the House GOP passing its tax bill, which just about everyone knew was going to happen on Wednesday when the stock market had a bad day.
The seesaw action made at least one thing clear to us: the market reaction will not be good if the House and Senate fail to reconcile their bills and don't get a tax deal done.
Call Wednesday a warning shot, then, and Thursday a hot-shot move for the bulls who are not ready to release their hold over the stock market.
The default belief continues to be that a tax deal of some kind will get done soon. On a related note, the Senate Finance Committee approved its tax plan approach in a partly-line vote, setting it up for consideration on the Senate floor the week after Thanksgiving.
That can be considered progress in the tax reform effort, yet the futures market, in its inimitable way, looks unimpressed this morning by that development.
The S&P futures are down two points, the Nasdaq 100 futures are up four points, and the Dow Jones Industrial Average futures are down 45 points.
It's a surprisingly lackluster indication considering a number of retailers, including Gap (GPS), Foot Locker (FL), Abercrombie & Fitch (ANF), Ross Stores (ROST), and Hibbett Sports (HIBB), reported positive earnings and/or sales surprises, Applied Materials (AMAT) exceeded sales and earnings expectations, Comcast (CMCSA) and Verizon (VZ) are reportedly interested in acquiring assets from Twenty-First Century Fox (FOXA), and the Housing Starts and Building Permits report for October blew past economists' average estimates.
In other words, many of the same factors driving yesterday's broad-based rally are in play again today, yet the response has been exceptionally neutral from a broad market standpoint.
Perhaps the trading attitude changes before the close, but one can reasonably assume not to expect much when the market opens.
In terms of the economic data, housing starts surged 13.7% month-over-month to a seasonally adjusted annual rate of 1.29 million (Briefing.com consensus 1.198 million) while building permits increased 5.9% to a seasonally adjusted annual rate of 1.297 million.
Those were the strongest readings for starts and permits since the beginning of the year and they were fueled by large increases for multi-unit dwellings. Still, there was some strength in single-family units as well, with single-family starts up 5.3% and single-family permits up 1.9%.
The key takeaway from the report is that it will be a positive input for fourth quarter GDP forecasts as the number of units under construction --1.096 million -- was slightly ahead of the third quarter average of 1.077 million.
Strikingly, the Treasury market has not distanced itself from the curve flattening trade. In the wake of the report, the 2-yr note yield is up three basis points to 1.73% while the 10-yr note yield is unchanged at 2.36%.
The flattening is somewhat thematic this morning in the sense that the stock market should start today's session on a flattish note.