We deemed Monday's session a rock 'n roll session. That being the case, we would have to describe Tuesday's session as more "roll" than anything else. The tech sector tried to rebound, but the big engine that could ultimately ran off the rails and had another disappointing outing.
The inability of the tech sector to maintain its early strength took a toll on investor sentiment and fostered a steady stream of selling interest that left all major indices negative for the day.
Where that leaves the stock market this morning is in the same place it left off. Sellers are dictating the action in the futures market at the moment and are setting the stage for a negative start for the cash market.
The S&P futures are down one point, the Nasdaq 100 futures are down 14 points, and the Dow Jones Industrial Average futures are down 27 points, which places them all 0.1% to 0.2% below fair value.
The primary impetus for the negative bias is the price action of the last few days. The stock market has been unable to hold on to bigger gains, suggesting to some that the buying efforts related to tax reform optimism have been exhausted.
In turn, the struggles of the technology sector are being construed as an indication that this latest rally leg has run its course and won't get back on track until the technology sector does.
Granted, there has been a healthy dose of sector rotation of late, but when the largest sector is sitting things out, it limits just how far things can go. Call it the imbalance of rebalancing.
Other considerations holding back buying interest this morning include the following:
- Geopolitical angst as reports suggest President Trump is set to acknowledge Jerusalem as the capital of Israel -- a contentious act that many Middle East leaders have warned will sow added seeds of unrest in the region
- Challenges to the global growth argument presented by the flattening yield curve, the flacid dollar, and the surprising drop in copper prices, which are down 9% since their October 16 peak; and
- A 2.2% decline in Home Depot (HD) following an update of its long-term financial targets
Market participants have not been enamored with this morning's economic reports. It isn't because they were disappointing so much as it is that they just aren't registering right now as focal points against the backdrop of weak price action.
The ADP Employment Change report for November was spot on with the Briefing.com consensus estimate, showing an estimated 190,000 jobs were added to private sector payrolls.
The revised third quarter productivity report, meanwhile, wasn't revised at all. Productivity increased 3.0% (Briefing.com consensus 3.3%) as previously reported. Unit labor costs, though, were revised to a decline of 0.2% (Briefing.com consensus +0.2%) from a previously reported 0.5% increase.
The downward revision to unit labor costs, which are down 0.7% over the last four quarters, was due to the 3.0% increase in productivity being greater than the 2.7% increase in hourly compensation.
The key takeaway from the report is that the productivity increase was the largest since the third quarter of 2014, yet labor costs continue to be subdued.
The latter consideration is a factor that has helped keep long-term rates low. The yield on the 10-yr note is down two basis points to 2.33% and is just 53 basis points above the yield on the 2-yr note versus 125 basis points at the start of the year.
That's referred to as a curve-flattening trade and its ultimate meaning remains unknown. For the time being, though, it's a factor that has equity traders feeling a little flat footed before the open.