Seeing is believing, yet we're not sure market participants are completely convinced that they can believe what they see this morning. Hot on the heels of an ugly session on Monday, the futures for the major indices are all noticeably higher.
The S&P futures are up 14 points and are trading 1.0% above fair value. The Nasdaq 100 futures are up 38 points and are trading 0.9% above fair value. The Dow Jones Industrial Average futures are up 136 points and are trading 0.9% above fair value.
There are some ostensible catalysts for the positive disposition, yet we think it starts with how the market finished Monday. To that end, the S&P 500 closed on an uptick after testing an important support level at the February low (2532.69).
Accordingly, one can make a case this morning that the positive bias is more technical in nature than anything else, especially since it holds the distinction of being deeply oversold on a short-term basis.
This market should be ready to bounce on that basis. Then again, that proclamation could have been reasonably made yesterday and Friday, and it mattered little in the end on each of those days.
It's possible today could be different, but it could very well take a test of the early rally effort to see if today's rebound try has some staying power or whether it will power down like every other rally effort has since the start of October with a prevailing inclination to sell into strength.
Watch the behavior of the financial, transportation, and retail stocks for some important cues. They have been among the hardest-hit areas in December and are influential drivers of economic sentiment. If this market is going to rally, and sustain a rally, these beaten-up stocks should be assuming a leadership position.
On the latter note, it's not enough for them simply to go down less than other stocks. At this juncture, you want to see them actually go up and lead the market.
It could be a tall order knowing that global growth concerns have been validated in part by Japan cutting its GDP growth outlook for the current fiscal year and next, Switzerland cutting its GDP growth outlook for 2019, and Italy said to be contemplating a cut to its GDP growth forecast for 2019.
In turn, the Housing Starts and Building Permits Report for November wasn't as strong as the headline figures suggested, as it featured little to no growth in both permits and starts for single-family units.
Total starts increased 3.2% to a seasonally adjusted annual rate of 1.256 million units (Briefing.com consensus 1.230 million), yet starts for single-family units declined 4.6% to 824,000, which is the lowest since May 2017. Total permits increased 5.0% to a seasonally adjusted annual rate of 1.328 million (Briefing.com consensus 1.270 million), yet permits for single-family units were up just 0.1% to 848,000.
The key takeaway from the report is that it substantiates the weakening levels of homebuilder confidence and is a reflection of the impact rising interest rates are having on single-family construction activity.
It is another data point that can give the Federal Reserve some reason to project a more conservative rate-hike outlook for 2019. The market will know more on that front tomorrow when the FOMC publishes a new policy directive and updated projections at 2:00 p.m. ET.
Chatter has picked up of late that the Fed should forego a rate hike this week, yet the CME Fed Watch Tool shows a 71.5% probability of a rate hike at tomorrow's meeting, which suggests there is still a prevailing view that there will be a rate hike.
President Trump is urging the Fed not to raise rates again, making his wishes known in a tweet this morning, which also featured a suggestion to end the $50 billion of quantitative tightening each month.
That tweet should get plenty of air time since the FOMC meeting, and the debate surrounding it, is going to get plenty of air time between now and tomorrow.
Something else that will get some air time is the policy speech given by Chinese President Xi Jinping. His basic message was for China to keep plowing ahead with its policy goals, offering a reminder to listeners that, "no one is in position to dictate to the Chinese people what should or should not be done."
It is hard to get a sense from that position that China is going to acquiesce to the structural changes the U.S. wants it to make by March 1. We'll know soon enough.
In other developments, Boeing (BA) made a shareholder-friendly (and market-friendly) announcement, saying its Board authorized a 20% increase in the quarterly dividend and the replacement of a prior buyback plan with a new $20 billion authorization.
Johnson & Johnson (JNJ) for its part announced a new $5 billion share repurchase plan in a sign of confidence in its outlook as it contends with the fallout from allegations the company knew its baby powder contained asbestos. The company has refuted those allegations.