There wasn't any selling into strength on Friday. Rather, there was buying into strength in a move that defied gravity and launched the major indices further into record space.
The S&P 500 is now up 7.5% for the year, leaving it on pace to record its fifth-best start to a year since 1950.
Some are calling this January advance a "melt up," as sidelined investors rush to participate in the upside action. Others are simply calling it the natural progression of a bull market that is following the trend in earnings growth estimates.
Both are fair characterizations, which have been borne out in fund flow reports and summaries on the earnings reporting season.
FactSet, for instance, informs us that the blended earnings growth rate for the fourth quarter has increased to 12% from 11% on December 31 while the blended revenue growth rate has increased to 7.0% from 6.7%. Furthermore, the full-year 2018 earnings growth rate has jumped to 16.3% from 12.2%, with revenue growth projected to be 6.0%.
This week is going to be a big week of earnings reporting -- literally and figuratively. There are 125 S&P 500 companies scheduled to report their results, including the likes of Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOG), Facebook (FB), Microsoft (MSFT), Boeing (BA), and McDonald's (MCD).
Lockheed Martin (LMT) and Seagate Technology (STX) were the headliners this morning and they both handily topped analysts' consensus estimates.
Both stocks are trading higher in pre-market action. Another stock trading higher -- sharply higher -- is Dr. Pepper Snapple (DPS). Shares of DPS are up 39% following the news that it will merge with privately-held Keurig Green Mountain.
Despite the positive price action in the aforementioned stocks, the S&P 500 futures are down nine points and are trading 0.3% below fair value, which is setting the stage for a modestly lower open.
The Nasdaq 100 futures are down 20 points and the Dow Jones Industrial Average futures are down 59 points.
That negative disposition is a byproduct of profit-taking expectations, yet rising market rates are garnering some blame for the lack of broader buying interest ahead of the open.
The yield on the 10-yr note has risen five basis points to 2.71%, hitting its highest level since April 2014. That move has mirrored selling in the European bond markets. For example, the yield on the 10-yr German bund is also up five basis points to 0.68%.
The jump in rates came ahead of this morning's Personal Income and Spending report for December, which also featured the PCE Price Index that is the Federal Reserve's preferred inflation gauge.
Personal income increased 0.4%, as expected, while personal spending also increased 0.4%. The latter was a bit weaker than the Briefing.com consensus estimate of 0.5%, yet any disappointment there was tempered by the recognition that the personal spending increase for November was revised up to 0.8% from 0.6% and that this data was embedded in last Friday's advance estimate for Q4 GDP.
The PCE Price Index was up 0.1% (Briefing.com consensus +0.2%) and the core-PCE price Index, which excludes food and energy, was also up 0.2%, as expected. Those monthly increases left the PCE Price Index up 1.7% year-over-year, down from 1.8% in November, and the core PCE Price Index up 1.5% year-over-year, unchanged from November.
That inflation data isn't going to alter the market's expectation that the Federal Reserve is likely to raise the fed funds rate again at its March meeting. That's one key takeaway from the report.
The other key takeaway is that the personal savings rate dropped from 2.5% to 2.4%, which is its lowest level since 2005, underscoring the notion that consumers might be saving less because they are feeling better about their job/income prospects.
This report kicks off an import week of economic reporting, which will also feature the release of the the ISM Index for January, auto and truck sales for January, and the employment situation report for January.
The Federal Reserve will be keeping a close eye on all of those data points; meanwhile, the market will be keeping a close eye on the Federal Reserve, which has a two-day FOMC meeting this week that will conclude with the issuance of a policy directive at 2:00 p.m. ET on Wednesday.
This will be the last meeting over which Janet Yellen presides as Fed Chair, which is partly why the market isn't expecting any "rock-the-boat" decisions out of this meeting.
Finally, President Trump will be delivering his first State of the Union Address on Tuesday. It is expected that he will talk up the benefits of tax reform while also laying out his vision on other matters, including infrastructure spending, immigration reform, trade, and foreign policy.
It is going to be a busy, busy week of news, but clearly, the state of the stock market entering the week is strong.