The stock market had a great day on Tuesday, rallying on a thought it has been rallying on for a while now and rallying on a separate thought that is really kind of silly when you stop to think about it.
The first thought was that the market is hopeful the U.S. and China are making progress in reaching a trade deal -- or might at least forestall an onerous increase in tariff rates if a deal is not reached by March 2. That is not a new thought, yet it's a happy thought with some staying power that is feeding into the upside price momentum.
The other thought was that it sounds like another government shutdown is going to be avoided.
Hip-hip hooray, you mean the U.S. government is actually going to be doing something normal? It's actually going to remain open to do the people's business? What a novel idea -- and what a silly-sounding trading catalyst when you stop to think about it.
The trading excitement over avoiding another government shutdown is like getting excited over the idea that your bank is going to be open for business on a Wednesday. That's not a surprise. It's a normal course of business for banks to be open on a Wednesday.
It goes to show, however, just how dysfunctional the business of Washington has gotten when the ability to maintain the normal course of business is grounds for a stock market rally.
Tuesday's rally was what it was, and it culminated with a close above the 200-day moving average for the S&P 500 that has created some trading excitement as well.
That's a key technical level, and it is thought by some that a close above that level will pave the way for further gains. That thinking is showing up in the futures market this morning.
The S&P futures are up nine points and are trading 0.4% above fair value. The Nasdaq 100 futures are up 37 points and are trading 0.5% above fair value. The Dow Jones Industrial Average futures are up 104 points and are trading 0.4% above fair value.
The upside bias is consistent with what was seen in foreign markets overnight, although it is more modest in scope relative to the gains registered by major Asian indices. The Shanghai Composite Index, for instance, was up 1.8%.
The positive bias in the futures market has persisted in the face of another round of earnings results, mostly from smaller companies, that were mixed but not capable of upsetting broad market sentiment.
Similarly, the Consumer Price Index (CPI) for January didn't upset things either -- at least not for the stock market.
Total CPI was unchanged (Briefing.com consensus +0.1%) while core CPI, which excludes food and energy, was up 0.2%, as expected. A 3.1% decline in the energy index tamped down total CPI and helped offset price increases for shelter (+0.3%) and apparel (+1.1%) that pushed up core CPI.
On a year-over-year basis, total CPI was up 1.6%, which is the smallest increase since June 2017. Core CPI was up 2.2%, which was the same increase as the 12-month periods ending in November and December.
The key takeaway from the report is that core CPI is stable above the Fed's longer-run target. That could give it some leeway to remain patient for the time being, but at the same time, if the stock market keeps rallying and economic data improve, it could be a basis to consider raising rates again.
The Treasury market might be sniffing that possibility even if the stock market isn't. Equity index futures moved to their highs of the morning after the release of the CPI report while the Treasury market fell to its lows.
The 2-yr note yield, which was at 2.51% just ahead of the report, is up four basis points to 2.54% following the report. To be fair, the CPI report could just be a headline excuse to take some profits from a Treasury market that has been resilient to selling pressure during the equity market rally.
Whatever the case might be, the case in point this morning is that the stock market is aiming to keep the pain trade alive for short sellers and sidelined participants.