August has arrived, and all things considered (and there has been a lot to consider!), the stock market has gotten here in remarkably good shape.
The S&P 500 is up 5.3% year-to-date, before dividends, and just wrapped up its best month since January. The Nasdaq Composite is up 11.1%; the Russell 2000 is up 8.8%; and the Dow Jones Industrial Average is up 2.8%.
The ride thus far has had its share of angst, but, objectively, the numbers have broken in favor of the bulls.
Things are going to break that way, too, for the Nasdaq Composite when today's opening bell rings. Currently, the Nasdaq 100 futures are up 22 points and are trading 0.4% above fair value.
Enter Apple (AAPL), which is the catalyst for that positive bias.
Shares of AAPL are up 4.5% after the company impressed investors with a fiscal third quarter report that included a 17.3% increase in revenue, bolstered in part by a 31% increase in its Services revenue, and a 19% increase in the average selling price for the iPhone. Apple's outlook was equally pleasing, as the company's fiscal fourth quarter revenue guidance of $60.0-62.0 billion was above the consensus estimate.
Apple has the market's largest capitalization at $935 billion, so it is literally throwing its weight around to lift the Nasdaq 100 futures and to support the broader market, which is being distracted by yet another contentious-sounding trade development.
Bloomberg is reporting that the Trump Administration is considering a 25% tariff on $200 billion of imported Chinese goods, as opposed to a 10% tariff on $200 billion worth of Chinese goods that was originally floated, if the U.S. ultimately decides to press ahead with its trade action following a public comment period. Naturally, China has already said it will retaliate if need be.
This could all be bluster and a tactic used to get China to the negotiating table; nonetheless, the specter of an intensifying trade war with China has mitigated some of the enthusiasm seen yesterday on the heels of another Bloomberg report suggesting the U.S. and China may be trying to restart negotiations to avert a full-fledged trade war.
Basically, if you are wondering why Apple hasn't had a more positive effect on the broader market, this is the reason. The S&P 500 futures are up three points and are trading just 0.1% above fair value.
The trade report is trumping (no pun intended) a Reuters report that Mexico's new president thinks a NAFTA agreement could be struck with the U.S. in the coming days, and it is trumping another encouraging labor market report.
The ADP Employment Change Report showed an estimated 219,000 jobs were added to private-sector payrolls in July (Briefing.com consensus 175,000). The bulk of the jobs were created in the Service-providing Sector (177,000). Notably, though, healthy job gains were logged across small (52,000), midsized (119,000), and large (48,000) businesses.
This report will set a bullish tone in front of Friday's Employment Situation Report for July and may induce some upward revisions to economists' forecasts for nonfarm payrolls.
The Treasury market took notice of the data. The yield on the 10-yr Treasury note has pushed up four basis points to 3.00%, which should be a favorable trading catalyst for the S&P 500 financial sector given the added recognition that the 2-yr yield is unchanged at 2.67%, which is the formula for curve steepening that can benefit net interest margins.
Accordingly, watch for the financial sector to exhibit relative strength in early action and to join with Apple to keep the broader market on a fairly even keel as market participants bide their time in front of the ISM Index and Construction Spending reports at 10:00 a.m. ET and what should be an anti-climactic policy statement from the FOMC at 2:00 p.m. ET.
No one expects the FOMC to raise the target range for the fed funds rate today or to alter its directive in any truly surprising fashion. Still, there is apt to be a healthy discussion at the FOMC meeting about when the Fed should put the brakes on its rate hikes and its approach to balance sheet management.
Today's directive isn't expected to provide an airing of those positions, yet the minutes from this meeting could prove to be an interesting read when they are released later this month.