No one should be surprised that the futures for the major indices are lower this morning. There was a good probability that would have been the case even if there wasn't any news to rationalize the negative disposition.
At yesterday's close, the S&P 500 was up 11.3% from its December 24 low. The speed of the ascent reflects a market that is overbought on a short-term basis and due for a period of consolidation.
That observation isn't new. We have been calling attention to the idea for the better part of the last two weeks, yet market participants have been reluctant to give in to the idea, which has been the surprise that has kept the market propped up as it has fueled a fear of missing out on further gains that has led to, well, further gains.
The start of today's session, though, should invite some backtracking. The S&P futures are down seven points and are trading 0.3% below fair value. The Nasdaq 100 futures are down 11 points and are trading 0.4% below fair value. The Dow Jones Industrial Average futures are down 71 points and are trading 0.4% below fair value.
That isn't much frankly given the scope of the gains that have been registered, yet the tempered conviction of buyers at the moment fits neatly with the S&P 500 sitting in a zone of technical congestion in the 2600-2645 area.
In other words, the climb from here will be more challenging than the easy-breezy jaunt from the deeply oversold December 24 low.
Alas, Morgan Stanley (MS) has seemingly provided a selling catalyst this morning with a fourth quarter earnings report that fell short of top and bottom-line expectations. Shares of MS, which have risen 21.1% from their December 24 low, are indicated 4.4% lower.
That pullback could rein in the red-hot financial sector a bit, which would be a drag on the broader market.
There are some other excuses in the selling mix this morning, too, namely trade concerns following reports that the U.S. is intent on pursuing criminal charges against Huawei for stealing trade secrets from U.S. companies and that lawmakers are working to introduce legislation that would ban the sale of chips to Chinese telecom equipment providers.
There is the disappointing first quarter revenue guidance from Taiwan Semiconductor (TSM), which is an Apple (AAPL) supplier; there is the government shutdown mess; there are concerns about the economic slowdown in China; and there are reportedly Brexit worries.
Remember, these are excuses, which means they may not be the real reason for the negative disposition, only that they provide some cover to try to explain the weakness in the futures market.
This morning's economic data can't be blamed for the weakness. It was better than expected.
Initial claims for the week ending January 12 decreased by 3,000 to 213,000 (Briefing.com consensus 221,000) while continuing claims for the week ending January 5 increased by 18,000 to 1.737 million.
The key takeaway from the report is that the low level of initial claims continues to reflect a solid labor market.
Separately, the Philadelphia Fed Index for January jumped to 17.0 (Briefing.com consensus 10.5) from 9.1, paced by an eight-point pop in the new orders index to 21.3 that was the highest reading in six months.
The key takeaway from this report was the indication that 46% of firms expect increased activity over the next six months while only 15% are projecting a decline.