It was a good start to the week for the stock market. The major indices all bounced nicely from last week's sell-off, with the Nasdaq Composite (+2.1%) leading the recovery effort. Unfortunately, they are all falling flat at the moment.
The S&P futures are down 9 points and are trading 0.5% below fair value. The Nasdaq 100 futures are down 27 points and are trading 0.6% below fair value. The Dow Jones Industrial Average futures are down 85 points and are trading 0.5% below fair value.
The retreat isn't altogether surprising for a few reasons: (1) this market has been inclined to sell into strength and (2) Monday's rally lacked a fundamental driver, which is to say it left room for doubt that it was little more than a token rebound effort on the heels of an ugly week of trading.
There is a headline catalyst today, however, that has dampened Monday's rebound spirits.
Specifically, President Trump said in a Wall Street Journal interview that it is "highly unlikely" he will refrain from raising a 10% tariff on $200 billion of Chinese goods to 25%, effective January 1. He added, too, that if China and the U.S. don't make a deal he will move ahead with a plan to place a tariff of 10% or 25% on an additional $267 billion of imported Chinese goods, including possibly iPhones and laptop computers.
These tariff threats aren't new.
The president's forceful reminder just ahead of the G20 Summit, however, has caused some concern that the meeting between President Trump and President Xi won't produce a meaningful relaxation of the trade tension between the U.S. and China, especially since President Xi hasn't expressed any willingness to this point to acquiesce to President Trump's most important trade demands.
The only thing that can probably be taken for granted with that meeting is that it will produce its share of headline volatility as press agencies from the U.S. and China race to generate some scoop in a fashion that may very well lead to contradictory interpretations of events.
On a somewhat related note, there was some overnight volatility in the futures market, which saw a huge spike following a report in China that President Trump and President Xi "agreed to reach mutually beneficial agreements." The spike was quickly unwound, though, when it was subsequently reported that the remark was just a restatement of what the leaders had discussed on November 1.
Turning away from trade matters, Dow component United Technologies (UTX) made some waves after yesterday's close with the news that it will be separating into three independent companies: United Technologies, which will include the aerospace and defense business, Otis, which will include its elevator, escalator, and moving walkway business, and Carrier, which includes its HVAC and refrigeration business.
UTX expects the spin-offs to be completed in 2020. The stock popped initially on the news, yet it is currently down 1.6% in pre-market action.
Separately, Fed Vice Chair Clarida said in a speech this morning that the fed funds rate is much closer to the vicinity of neutral than it was when the Fed started raising rates in December 2015. That view hasn't changed the tone of the futures market, though, as everyone is waiting anxiously for what Fed Chair Powell will say when he addresses the Economic Club of New York in a speech at 11:30 ET on Wednesday.
In the interim, there will be some new data to consider, including the Case-Shiller Home Price Index, FHFA Housing Price Index, and Consumer Confidence reports today, followed by the second estimate for Q3 GDP and the New Home Sales report on Wednesday.