The rally train kept on rolling Tuesday and it appears that it will keep rolling at the open today. The S&P futures are up 12 points and are trading 0.4% above fair value. The Nasdaq 100 futures are up 32 points, leaving them 0.4% above fair value, while the Dow Jones Industrial Average futures are up 134 points, which also puts them 0.4% above fair value.
There isn't a lot of "new" news driving the upside bias. Rather, it is a continuation of the same themes that have facilitated a material rebound from the Christmas Eve low.
It started with rebalancing activity and a contrarian-oriented mindset that sentiment had gotten too pessimistic.
It then diverged into a fundamental view that the fourth quarter sell-off produced more attractive valuations. That perspective resonated in the wake of a stronger than expected December employment report and it reverberated on the back of a reassurance from Fed Chair Powell that the Fed will be patient with its policy approach, as well as reports that trade talks between the U.S. and China have gone well.
The market is seeing the light -- or at least it is choosing to see the light for the time being.
In that regard, it has adopted a perverse mindset that bad economic news is good news because it will keep the Fed at bay. It has steered through sales and profit warnings, accepting of the idea that the bad news has been priced in already. To wit, Apple (AAPL) supplier Skyworks Solutions (SWKS) lowered its fiscal first quarter guidance, yet its stock is indicated 3.9% higher.
Constellation Brands (STZ), on the other hand, is down 11.4% after issuing FY19 guidance that fell below analysts' consensus estimate. That news, however, has been kept in isolation and has not undercut broader market sentiment.
Separately, Treasuries are still on the defensive as the risk-on mindset in stocks has supplanted the risk-off mindset in the fourth quarter that fueled a rally in the Treasury market. The unwinding there is presumably part of an asset reallocation trade that has helped lift stock prices.
Nothing so far, however, has lifted the locks put on the doors of several government agencies. The partial shutdown continues, with the stand-off over border security funding being the main point of impasse.
President Trump made his case last night for why he is requesting border wall funding and leading Democrats quickly countered with why they are opposed to providing funding to build a wall.
This standoff might not be affecting the stock market at this juncture, but if it persists and threatens the ability to reach a compromise on lifting the debt ceiling, Fitch Ratings has warned that it might cut its AAA rating for the U.S.
That would get the stock market's attention if such a downgrade came to pass, yet that is not a major concern for now for the stock market.
The major concerns for now are the trade dispute with China and the course of monetary policy. There have been green shoots of optimism surrounding both early in the new year and so the stock market is in a blooming phase as a result of it.
On a related note, the minutes from the December FOMC meeting will be released at 2:00 p.m. ET. That release will be preceded by speeches from 2019 FOMC voting members Charles Evans (Chicago Fed President) and Eric Rosengren (Boston Fed President). Earlier this morning, Atlanta Fed President Bostic (a 2018 FOMC voter) echoed Fed Chair Powell's view that it is time for the Fed to be patient.