True to form, the stock market shrugged off Friday's disappointing economic data, choosing instead to focus on the prospect of the Fed holding off on a rate hike because of the disappointing data. It was the vintage "bad-news-is-good-news" trade and it resulted in new record highs for the Dow Jones Industrial Average, S&P 500, and Russell 2000.
The futures market this morning is staying the course.
Currently, the S&P futures are flat while the Nasdaq 100 futures are up four points.
Early sources of support include better-than-expected economic data out of China, a drop in market rates, and an expectation that the indices are poised to pad their gains with the help of earnings news this week.
China's data included a report showing Q2 GDP rose 6.9% year-over-year, which was steady with the first quarter but above economists' average expectation for a 6.8% year-over-year increase. That report was accompanied by fixed asset investment, industrial production, and retail sales for June, all of which were better than expected.
The Shanghai Composite, however, declined 1.4% as concerns about stronger regulations and tighter monetary policy to rein in speculative excesses won out as the market driver.
In the same vein, European markets have been held in check by the specter of this week's ECB meeting (Thursday). Market participants are anxious to hear if Mr. Draghi will lay the groundwork for a transition to a less accommodative policy stance at future meetings.
The prevailing expectation is that such a perspective will likely wait until September, but one never knows what will come out of the mouths of central bankers these days so there is an implicit level of respect for the element of surprise heading into the meeting.
The Bank of Japan will also be holding a policy meeting, the results of which will be announced late Wednesday night.
The only economic report of note out of the U.S. today was the Empire Manufacturing Survey for July. It disappointed, checking in at 9.8 versus the Briefing.com consensus estimate of 13.0 and the prior month's reading of 19.8.
The downturn was influenced by a drop in the indexes for new orders, shipments, unfilled orders, inventories, the number of employees, and the average workweek.
The 10-yr Treasury yield is down two basis points to 2.32%.
In other developments, press reports indicate the Senate will delay a vote this week on health care reform. There are rumblings that the GOP still doesn't have enough support for its revised bill, and knowing every vote counts, the fact that Senator McCain is in Arizona recovering from eye surgery has reportedly influenced the decision to delay the vote.
Investors will be digesting a number of earnings reports for the June quarter this week. There haven't been any market-moving reports this morning, but that could change tomorrow with Netflix (NFLX) reporting after today's close and Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), and UnitedHealth (UNH) all reporting before Tuesday's open.
The latest report from FactSet indicates the blended earnings growth rate for the second quarter is 6.8%, up from 6.6% on June 30.
With the flood of earnings reports set to hit, the S&P 500 is trading at 17.6x forward twelve-month earnings. That is a 26% premium to the 10-year average and underscores the importance of hearing both good earnings news and reassuring guidance.