The Nasdaq Composite rode Netflix (NFLX) and a number of other favored growth stocks to a new record high on Tuesday that looks set to be extended when the opening bell rings today. Currently, the Nasdaq 100 futures are up 18 points and are trading 0.3% above fair value. The S&P 500 futures, meanwhile, are up two points and are trading 0.1% above fair value.
In brief, it's a matter of trading repetition today until something alters the course of action.
That "something" could be a burgeoning sense that the growth stocks and the Nasdaq Composite are due for some profit taking following eight straight gains and a 4.2% advance for the Nasdaq over that stretch. Then again, one could have made a similar observation before yesterday's open and all the Nasdaq ended up proving on Tuesday was that some stocks can stay overbought for an extended period of time.
So, there is little point in making a prediction about performance today other than to say the direction the high-profile growth stocks take will offer some guiding influence for the broader market.
The growth stock story isn't the only one to be told today. There are a number of story stocks thanks to the earnings reporting period, which has included reports since yesterday's close from the likes of IBM (IBM), United Continental (UAL), CSX Corp. (CSX), U.S. Bancorp (USB), and Morgan Stanley (MS).
IBM is down 3.0% in pre-market trading as a year-over-year revenue decline for the 21st consecutive quarter has overshadowed its positive earnings surprise. UAL and CSX are down 3.7% and 3.1%, respectively, as neither transport company met investors' high expectations with their guidance.
The weakness in UAL, which has spilled over to other airlines, and in CSX, will be a drag on the Dow Jones Transportation Average, which recently hit a new record high as well.
The expected drag from the transports will act as a weight on the broader market; however, a 3.4% increase in MS, and a potential halo effect on other financial stocks, is expected to act as a mitigating influence along with some M&A activity and the reassuring Housing Starts and Building Permits Report for June.
Housing starts jumped 8.3% to a seasonally adjusted annual rate of 1.215 million (Briefing.com consensus 1.160 million) after being revised up to 1.122 million (from 1.092 million) in May. Building permits increased 7.4% to a seasonally adjusted annual rate of 1.254 million (Briefing.com consensus 1.196 million) from an unrevised 1.168 million in May.
The key takeaway from the report is that there was solid growth in both single-family starts (+6.3%) and permits for single-family homes (+4.1%), both of which are important given the supply constraints in the housing market that have crimped affordability for many prospective home buyers.
The latter point notwithstanding, the strongest growth rates in June were reserved for multi-unit starts (+13.3%) and multi-unit permits (+13.9%).
This report should presumably be good news for the homebuilding stocks, which would add some ballast perhaps for the consumer discretionary sector from a source other than Amazon.com (AMZN).
On the M&A front, Discovery Communications (DISCA) is reportedly mulling a merger with Scripps Networks (SNI); Crown Castle International (CCI) is acquiring LTS Group Holdings for $7.1 billion in cash; and McCormick & Company (MKC) is buying a Reckitt Bensicker Group (RBGLY) food unit for $4.2 billion.
Separately, Vertex Pharmaceuticals (VRTX) is a story stock without an earnings report. Its stock has soared 26% in pre-market trading after the company disclosed positive Phase 1 and Phase 2 trial results for its Cystic Fibrosis drug. The favorable reaction to that favorable report could potentially excite the trading masses in the biotech space.
We'll see what all unfolds when the day is done, yet the sunrise assessment this morning is that the stock market is choosing once again to rise above the dysfunction in Washington.