The S&P 500 futures are down six points and are trading 0.4% below fair value. In other words, the broader market is looking pretty good this morning (all things considered).
Actually, there is one main thing to consider and it is this: Facebook (FB) is indicated 21% lower in pre-market trading after the company broadsided investors with disappointing guidance that included an outlook for high-single digit sequential revenue growth deceleration in the third and fourth quarters and a significant drop in its operating margin rate for 2018.
That guidance came on top of what was already considered to be a relatively disappointing second quarter report, which was replete with a decline in daily active users in Europe.
If one had told you Facebook would be down 21% and that the S&P 500 futures would be only 0.4% below fair value, you might be inclined to say there is something wrong in the calculation.
Alas, there isn't, which is why one can reasonably say the current indication isn't so bad.
The bad indication has been reserved for the Nasdaq 100 futures, which are trading 1.5% below fair value. Facebook is factoring favorably there, yet there is a veil of weakness covering many other Nasdaq issues at the moment, as they slip in sympathy with Facebook.
Amazon.com (AMZN) is among them. It is down 1.4% in pre-market trading. Amazon is reporting its results after the close. The early weakness isn't rooted in an expectation that Amazon will disappoint so much as it is probably rooted in concern that it will get whacked, too, if it doesn't live up to the very lofty expectations for the company that have driven its stock up 59% since the start of the year.
In any event, it will be a mixed start for the stock market, with the Nasdaq underperforming the S&P 500 and Dow Jones Industrial Average in a stark manner. Heck, the Dow Jones Industrial Average futures are up 51 points and are trading 0.2% above fair value.
The positive bias among the industrials is linked to improved sentiment surrounding trade matters -- at least with respect to EU trade matters. Things with China didn't take the best of turns after Qualcomm (QCOM) walked away from its bid to acquire NXP Semiconductors (NXPI), citing the lack of Chinese approval by yesterday's deal deadline.
EU trade matters, on the other hand, took a step in the right direction at yesterday's meeting between European Commission President Juncker and President Trump.
The gist of matters is that the EU appears ready to import more soybeans and natural gas from the U.S.; meanwhile, both the EU and U.S. said they will work to resolve the steel and aluminum tariffs and the countermeasures applied after those tariffs were imposed by the U.S.
The most encouraging takeaway for the market, however, is the understanding that the threat of auto tariffs is going to be tabled as the two sides work on trade negotiations that will include efforts to work toward zero tariffs on non-auto industrial goods.
Of course, auto tariffs could come back on the table at a future date if negotiations don't go the way President Trump would like them to go, but the market will cross that bridge if it gets to it. For now, it is strolling with the idea that the trade tension between the EU and the U.S. has eased.
On a related note, the ECB left its key policy rates unchanged as expected. The central bank also repeated its view that its net asset purchases will likely cease at the end of December 2018 and that the ECB will reinvest the principal payments from maturing securities for an extended period of time after the end of the net asset purchases.
Translation: there was nothing surprising in the ECB statement.
Rounding out a very busy 24-hour period of earnings news, which included an FY18 earnings warning from Ford Motor (F) to go along with the warnings from General Motors (GM) and Fiat Chrysler (FCAU), there was a rash of economic data this morning that was a bit weaker than expected:
- Durable Goods orders for June increased 1.0% (Briefing.com consensus +3.2%). Excluding transportation, durable goods orders increased 0.4% (Briefing.com consensus +0.4%).
- The key takeaway from this report, however, was that orders and shipments for nondefense capital goods orders, excluding aircraft, were up 0.6% and 1.0%, respectively, which is a good indication for business spending and a positive input for Q2 GDP forecasts.
- Initial claims for the week ending July 21 increased by 9,000 to 217,000 (Briefing.com consensus 215,000). Continuing claims for the week ending July 14 decreased by 8,000 to 1.745 million.
- The key takeaway from this report is that initial claims remain low and consistent with a tight labor market.
- The Advance International Trade in Goods Report for June showed a widening in the goods deficit to $68.3 billion from $64.8 billion in May. Advance Wholesale Inventories were flat in June after increasing 0.4% in May.