The stock market pieced together a nice day of gains on Wednesday, which reportedly stemmed from its enthusiasm for the introduction of a tax reform blueprint designed by the White House and GOP leaders.
That enthusiasm seemingly manifested itself in a reflation trade that benefited the dollar, the financial and information technology sectors, and small-cap stocks. Conversely, there was a deflation in Treasury prices, which drove yields up across the curve in a curve-steepening trade that is typically associated with an improved economic outlook.
That was yesterday.
Today, the enthusiasm has been reined in. The S&P futures are down four points, the Nasdaq 100 futures are down 17 points, and the Dow Jones Industrial Average futures are down 40 points. The dollar is down 0.1% against a basket of major currencies, but there has been at least one carryover from Wednesday: the curve-steepening trade.
The latter should continue to provide support for the financial sector
Meanwhile, we would attribute the overall lack of follow through buying interest to the notion that market participants are realizing yesterday's response to the tax reform blueprint was a bit of an overshoot for two reasons: (1) it was a rehash of the proposals that had been floated in the press ahead of time and (2) there is no detail on how it gets paid for other than the hopeful projection that subsequent growth will cover the bill.
There is a lot of debate that needs to be had before the blueprint becomes an actual structure and some lingering misgivings about the ability of Congress to agree to the design are bound to create some headwinds. By the way, the one thing National Economic Council Director Gary Cohn said was non-negotiable is the 20% corporate tax rate, unless it were to be taken lower.
To be sure, the phrase "tax reform" is going to be heard a lot into year end.
Other things being heard this morning include better than expected earnings from Blackberry (BBRY), McCormick & Co. (MKC), Accenture (ACN), ConAgra (CAG), Jabil Circuit (JBL) and Thor Industries (THO), as well as some better than expected economic data.
Second quarter GDP was revised up to 3.1% (Briefing.com consensus 3.0%) from 3.0% primarily on the back of private inventory investment that increased more than previously estimated. The GDP Deflator was left unchanged at 1.0%, as expected.
Initial claims for the week ending September 23 increased by 12,000 to 272,000 (Briefing.com consensus 275,000), remaining elevated due to the impact of Hurricanes Harvey and Irma. Nevertheless, they held below 300,000 for the 134th straight week. Continuing claims for the week ending September 16 decreased by 45,000 to 1.934 million.
Finally, the Advance International Trade in Goods report showed the goods deficit narrowed to $62.9 billion (Briefing.com consensus -$65.1 billion) in August from an upwardly revised $63.9 billion (from -$65.1 billion) in July.
The futures market didn't show much reaction to the data and neither did the Treasury market, which have been on the same reflation trade wavelength in recent weeks.