Interest rates are up and stock futures are down. That inverse correlation is the focal point for market participants, as higher rates are causing some angst about stretched equity valuations.
It's an important development that bears close watching, yet let's not forget either that the stock market is overdue for a pullback of some kind after launching out of the gate in 2018.
The S&P 500 and Nasdaq Composite haven't had a down day yet and have registered new record highs in all six trading sessions this year. The Dow Jones Industrial Average has just barely missed doing the same.
The indices are ripe for some profit taking after gaining between 2.7% and 3.8% since the start of the year; accordingly, it is less difficult to use a piece of news as an excuse to do some selling at this juncture.
Rising interest rates (which are still low in real terms) has provided the perfect excuse, especially since they have been wrapped up in an adjoining narrative suggesting the bump in long-term rates is a reflection of (a) budding inflation concerns (b) budding concerns the ECB and Bank of Japan could become less accommodative with their monetary policy sooner than expected and (c) budding worries China might halt, or trim, its Treasury purchases.
The latter, which was discussed in a Bloomberg.com article, has been cited as the driving catalyst for the weakness in the Treasury market this morning where the yield on the 10-yr note has climbed three basis points to 2.58%, hitting its highest level since last March.
At the moment, the S&P futures are down nine points, the Nasdaq 100 futures are down 35 points, and the Dow Jones Industrial Average futures are down 88 points.
Those indications will translate into a lower start for the major indices, with losses in the neighborhood of 0.3% to 0.5%.
What happens after that is the real point of interest. Will buyers step up to buy the dip or will today be a day of pricing attrition?
There is still some uplifting corporate news, like United Continental (UAL) and American Airlines (AAL) both raising their fourth quarter RASM guidance, and Nordstrom (JWN) saying it sees fiscal 2017 earnings in the upper half of its prior guidance range of $2.85 to $2.95.
That news, however, isn't have any broad market impact as the macro consideration of rising interest rates is currently overshadowing micro developments.
The Import and Export Price Index reports for December hasn't caused any shift in the pre-market bias either.
Import prices increased 0.1%, but were down 0.1% excluding fuel. Export prices, meanwhile, decreased 0.1% and were flat excluding agriculture.
The monthly readings for December, though, belie the upward trend in both import and export prices.
To wit, import prices were up 3.0% in 2017, versus 1.9% for 2016, logging their largest calendar-year increase since 2011. Export prices were up 2.6% in 2017, versus 1.3% for 2016, and also recorded their largest calendar-year increase since 2011.
The key takeaway from the report is that it will continue to foment budding inflation concerns, especially since the dollar is weakening, labor markets are tightening, and global growth is improving.