The stock market had a great day on Tuesday. It got a lot of bulls fired up that it was the start of a formulaic, V-shaped recovery that has been seen often following a big price drop like the one experienced last week. It might be when it's all said and done, but that sense of V-shaped gratification is going to have to be deferred at the start of today's trading.
Currently, the S&P futures are down 10 points and are trading 0.2% below fair value. The Nasdaq 100 futures are down 34 points, but are trading 0.4% above fair value. The Dow Jones Industrial Average futures are down 117 points and are trading 0.5% below fair value.
Those mixed indications are most likely not what many participants were expecting considering companies like Netflix (NFLX), Lam Research (LRCX), CSX Corp. (CSX), and United Continental (UAL) kept the good earnings news flowing with September quarter results and/or guidance that exceeded expectations.
The stocks of those companies are all up in pre-market trading, yet Netflix is the real luminary, adding 10.0% as investors have taken great delight in the company's stronger than expected subscriber growth and subscriber growth forecast.
The response to the Netflix report should presumably keep a bid in the growth/momentum stocks that powered yesterday's rally, yet the futures indications are raising some questions about whether that trade will continue to have traction.
In the same light, the semiconductor stocks should presumably maintain some leadership style given that leading chip equipment company Lam Research (LRCX) said it thinks the September quarter marked a near-term trough for its business.
IBM (IBM), meanwhile, is not a party to the positive earnings responses. It is down 5.0% in pre-market trading, having been undercut by investors who were duly unimpressed by the recognition that IBM's revenues declined 2.1% year-over-year.
IBM's weakness is a major factor driving the weakness in the Dow Jones Industrial Average futures, as is the weakness in Home Depot (HD), which is down 1.5% following a Credit Suisse downgrade to Neutral from Outperform.
Macro matters are also playing a part in the soft futures indication, with a lot of focus surrounding the housing market.
Mortgage applications declined 7.1% week-over-week, impacted partly by the Columbus Day holiday but in keeping with a softening trend due to rising mortgage rates. Refinancing applications dropped 9% while purchase applications fell 6%.
Rising mortgage rates and high prices that have stemmed from limited inventory have crimped affordability for home buyers. Unfortunately, it doesn't look as if the supply situation is going to provide meaningful relief soon.
Housing starts declined 5.3% in September to a seasonally adjusted annual rate of 1.201 million units (Briefing.com consensus 1221K), with single-family starts down 0.9% to 871,000.
Building permits were down 0.6% to a seasonally adjusted annual rate of 1.241 million (Briefing.com consensus 1273K), although that was owed to a 9.3% decline in permits for buildings with five units or more. Single-family permits were up 2.9% to 851,000, which tied with March for the third-lowest annual rate this year.
The key takeaway from the report is that the supply of new homes isn't picking up fast enough to meet the demand for new homes at more affordable price points. Accordingly, overall home sales activity will continue to be curtailed by affordability constraints.
There will be some commentary on housing market conditions in the FOMC Minutes for the September meeting that will be released today at 2:00 p.m. ET. Those minutes are dated obviously, but with the market's heightened sensitivity to the specter of future rate hikes, these minutes could cause a stir if they convey a resolute stance to maintain a tightening bias.
Stay tuned there. In the meantime, the stock market is tuned up for a mixed start.