The stock market provided the press with a good headline on Wednesday as the S&P 500 closed at a new record high. That accomplishment, though, was not without its blemishes, namely the lack of participation in the move by the financial sector and the underperformance of the transports.
Moreover, Treasury prices rose (and yields fell) along with stock prices, which isn't exactly the type of move one might associate with a stock market breaking to new highs.
The connection between the two is that the Fed's possible approach to reducing its balance sheet, which was contained in the FOMC Minutes for the May 2-3 meeting, was not as hawkish as feared. Accordingly, both stock and bond traders saw some scope to put a bullish spin on things.
That spin is persisting this morning.
The S&P futures are up six points and are trading 0.2% above fair value. The 10-year yield, meanwhile, is unchanged at 2.26%.
A bullish bias is a sign of the current trading times. To wit, since dropping 1.8% last Wednesday, the S&P 500 has increased in each of the last five sessions, tacking on 47 points, or 2.0%, along the way in a buy-the-dip move that has been a pain trade for short sellers.
The bias is holding up so far, too, despite a 1.2% drop in oil prices ($50.76, -$0.60) on reports that OPEC and certain non-OPEC countries have agreed to extend their production cuts for nine months, but without any increase in the total production cut of 1.8 million barrels per day.
It is more of a sell-the-news response since the nine-month extension had been priced in already. Traders were hoping for more with an actual increase in the size of the production cut, yet they recognize that was just wishful thinking, which is why the fallout hasn't been more pronounced.
Separately, the CBO after yesterday's close released its scoring of the House GOP's revised health care bill. It wasn't the best of news, as it showed an additional 23 million people would be uninsured by 2026, down slightly from the 24 million estimated under the initial plan. It was also estimated that the revised bill will reduce the deficit by $119 billion over 10 years versus a prior estimate of $150 billion.
The silver lining from a political standpoint is that it passed muster under the reconciliation process, so it won't have to come back to the House to be redrafted.
The latter point notwithstanding, the House GOP bill is very unlikely to fly in the Senate, which is to say the path to health care reform -- and tax reform -- still can't be considered to be a smooth one.
That's not a new understanding for the stock market, which seems content this morning just knowing the bill hasn't been sent back to the House drawing board. In that regard, it considers some progress on the path to tax reform having been made.
In other developments, Best Buy (BBY) demonstrated that it is making progress in terms of competing with Amazon and others. The electronics retailer's stock is up 13% in pre-market action after posting better than expected first quarter results, which were replete with an increase in sales (albeit a modest one) and comparable sales.
A number of other retailers, including Williams-Sonoma (WSM), Dollar Tree (DLTR), Abercrombie & Fitch (ANF), and Signet Jewelers (SIG), also posted their earnings results and the response to them has been mixed.
There wasn't much that was mixed about the latest initial claims report. It continued to paint a picture of a labor market where employers are generally reluctant to cut staff, which is a sign of a tight labor market.
Initial claims for the week ending May 20 increased by 1,000 to 234,000 (Briefing.com consensus 238,000) while continuing claims for the week ending May 13 increased by 24,000 to 1.923 million after hitting their lowest level since November 1988 in the prior week.
Finally, the advance U.S. International Trade in Goods Report for April showed the goods deficit widening to $67.6 billion from $65.1 billion in March, with imported goods increasing $1.4 billion from March and exported goods decreasing $1.1 billion. That will likely temper some forecasts for the net exports contribution to second quarter GDP.