The major indices are expected to head lower when the opening bell rings, according to the futures market.
Currently, the S&P futures are down eight points and are trading 0.4 % below fair value. The Nasdaq 100 futures are down 34 points and are trading 0.6% below fair value. The Dow Jones Industrial Average futures are down 96 points and are trading 0.5% below fair value.
The go-to excuse is a reining in of the market's aggressive rate-cut hopes following the stronger-than-expected June employment report. By the way, that was the go-to-excuse on Friday, too, and the major indices eventually reclaimed intraday almost everything they lost in early action.
It's fair to say some of the speculative excess is being pulled back. After all, there are more participants back from the holiday break, yet we wouldn't overstate the negativity of the rate-cut rethink, especially when the market still has a degree of comfort in knowing hiring activity was strong in June and that it still strongly believes the Fed will cut the target range for the fed funds rate by 25 basis points at the July 30-31 FOMC meeting.
The negative strain this morning, frankly, probably has more to do with a series of downgrades to leading tech sector components, including Apple (AAPL), Applied Materials (AMAT), Lam Research (LRCX), Western Digital (WDC), and NetApp (NTAP), as well as a reminder published in the South China Morning Post that a trade deal between the U.S. and China is "far from certain" given how entrenched both sides appear to be over the main sticking points to a deal.
Separately, Morgan Stanley has downgraded its view of global equities to Underweight, according to Bloomberg, saying the outlook over the next three months looks "particularly poor."
Deutsche Bank (DB) has provided the corporate news headline of the morning. In a major restructuring effort, the German bank said it is going to exit its global equities and trading business, suspend its dividend until 2022, and make 18,000 job cuts by 2022.
Deutsche Bank has lots of well-known problems, so this can be parsed as a mostly company-specific issue; nonetheless, it's a headline with negative connotations for investor sentiment that is helping to hold things back this morning.
The same can be said for Dow component Boeing (BA), which is down 1.5% in pre-market trading following the news that a Saudi airline has canceled a $5.9 billion 737 MAX order in favor of Airbus, according to FT. Again, this hearkens back to a company-specific issue, yet Boeing's weakness will be a drag on Dow and S&P 500, as will Verizon (VZ), which was downgraded to Neutral from Buy at Citigroup.
So, this morning's early weakness isn't just a rate-cut issue. There is more afoot that has the stock market set to take its first step today with two left feet.
That's just the first step, however, in a long walk this week that will also include the semi-annual monetary policy testimony from Fed Chair Powell on Wednesday and Thursday, respectively, and the Consumer Price Index for June on Thursday.
Those items will add to a week certain to be filled with rate-cut deliberations from the first step at today's opening bell to the last step at Friday's closing bell.