The new week looks set to start on the wrong foot for the bulls.
The S&P 500 futures are down 12 points and are trading 0.4% below fair value. The Nasdaq 100 futures are down 79 points and are trading 1.1% below fair value while the Dow Jones Industrial Average futures are down 121 points and trading 0.5% below fair value.
There are several reasons for the underperformance of the Nasdaq 100 futures:
- Facebook (FB) is down 3.6% following reports Cambridge Analytica mined the data of 50 million Facebook users without their permission as part of an alleged effort to possibly influence voters' thinking leading up to the 2016 election. The issue for Facebook specifically, though, is the data breach.
- There are continued reports that the EU could subject technology companies to a 3% tax on gross revenues
- There is some upset in the Apple (AAPL) ecosystem following reports Apple might be designing its own display screens; and
- The notable weakness in pre-market action is driving some selling interest in crowded tech sector trades
That helps explain why the Nasdaq and Nasdaq 100 will be weak at the open, but what about the broader market?
Well, the easiest explanation is that it will be weighed down by the technology sector, which is its largest sector, accounting for 25.5% of the S&P 500 market capitalization.
Beyond that easy explanation, though, there some other nettlesome factors that include festering trade war concerns, rising interest rates, and angst ahead of this week's FOMC meeting.
There is even some chatter this morning about a potential government shutdown if Congress doesn't agree to a bill by midnight on Friday that determines how the spending increase approved earlier this year is actually allocated.
In brief, there is a cloud of negativity raining on the market at the moment, which is keeping buyers on the sidelines.
That could be a popular location leading up to Wednesday when the FOMC releases its latest policy directive and the Federal Reserve publishes its updated economic and interest rate projections.
The FOMC is expected to raise the target range for the fed funds rate by 25 basis points. The intrigue for the market lays in the interest rate projections and whether they will show an uptick in the median estimate for rate hikes this year from three to four.
The Treasury market has been anxious about that possibility. The 2-yr note yield is up two basis points this morning to 2.31%, which is its highest level since 2008, and is up 40 basis points since the start of the year.
Rising interest rates have been a headwind at times for the stock market, which has been measuring that move against some full stock valuations. We discussed that connection in an updated Market View published on Friday.
For now, the market view sees a weaker open despite some Monday M&A activity that has included an offer by Fidelity National Financial (FNF) to acquire Stewart Information Services (STC) for $50.25 per share in cash and stock and word that CACI International (CACI) has made an unsolicited $44.00 per share cash-and-stock offer to acquire CSRA (CSRA).