The stock market didn't pull a rabbit out of its hat Thursday, yet it did something that resembled a magic trick as a massive rally appeared out of thin air late in the day to save the market from an ugly day of losses.
The S&P 500, down 2.8% around 2:15 p.m. ET, ended the session up 0.9%. The other major indices experienced a similar outpouring of buying support.
It was a stunning reversal that many think was the work of pension fund rebalancing activity. We suspect short-covering activity and a rush of speculative buying interest also played a role in getting things turned around in a hurry.
Whatever the exact cause, the stock market had a one-track mind from 2:15 p.m. ET into the close at 4:00 p.m. ET. Accordingly, a market that had gone off the rails got back on a winning track and plowed ahead like a bullet train that was stopped only by the closing bell.
The major indices look ready to pull out of the station at today's opening bell, not with a full head of steam but at least with some kinetic energy.
The S&P futures are up ten points and are trading 0.6% above fair value. The Nasdaq 100 futures are up 15 points and are trading 0.5% above fair value. The Dow Jones Industrial Average futures are up 111 points and are trading 0.6% above fair value.
If there is going to be a challenge today for the market's recovery effort, it will likely be the prevailing expectation that the market is primed to reprise its winning performance today.
After all, hopes are high for several reasons that this market will continue to make up the lost ground this month (and since Oct. 1).
An appreciation for the scope of Wednesday's rally is one reason. The buy-the-dip mentality winning out on Thursday is another reason. And the ability to hold up this week in the face of bad news about the partial government shutdown, softening economic data, and central banks highlighting an expectation for slower global growth in 2019, is a third reason based on the notion that it has been discounted in stock prices already.
There will be talk of more support from pension fund rebalancing activity; there will be talk of oversold conditions; and there will be talk of more attractive valuations.
Everything, then, seems to be in place to keep this Santa Claus rally going. When everything looks so tidy, though, is when you can get some messy outcomes. That's not always the case, yet it's a risk to be accounted for heading into today's action.
Things certainly remain messy in Washington. There won't be a government funding measure approved until next week at the earliest, as the House and Senate have effectively closed voting operations for the small remainder of this year; meanwhile, leading Democrats and the president are at loggerheads over the border wall funding issue.
The political fight, then, will carry over into 2019. All the market seems to be concerned with today, though, is the attempt to extend the turnaround effort.