The stock market finished Friday with a flourish, yet the bloom looks like it will be kept on the rose at the open today. The S&P futures are down one point and are trading 0.1% below fair value.
It's an interesting indication, if for no other reason than the fact Warren Buffett told CNBC today that he thinks stocks are cheap with interest rates at current levels. That's no small proclamation from the world's greatest, value-oriented (and long-term) investor. Moreover, Mr. Buffett acknowledged that Berkshire Hathaway has more than doubled its stake in Apple (AAPL) since the end of the year.
The latter helps explain the 4.8% gain AAPL registered in January and it also helps underscore how AAPL has been a major source of support for the broader market, having climbed an astounding 18% since the end of 2016.
AAPL is indicated 0.2% higher in pre-market action. We attribute the relatively subdued response in the wake of Mr. Buffett's latest disclosure to three factors: (1) Mr. Buffett also said he hasn't bought any more shares since the earnings report (2) the purchases made by Berkshire Hathaway are already "in" the stock price and (3) there are underlying concerns about APPL being overextended on a short-term basis, trading 24% above its 200-day moving average.
Concerns about the market as a whole being overextended on a short-term basis continue to act as a restraint. The notion that the market is due for a pullback is not a novel one nor is the understanding that the market continues to defy that notion.
The lack of follow-through selling interest has been an upside catalyst itself in that it has spurred a fear of missing out on further gains that has kept pullbacks to a very minimum up to this point.
Additionally, the idea that tax reform is going to happen this year is the carrot that keeps dangling in front of buyers who remain unafraid for the most part of getting hit by a stick of any kind.
That includes the stick of rising interest rates. Notwithstanding several warnings from Fed officials that the upcoming FOMC meeting in March is a "live" meeting for a possible rate hike, the fed funds futures market is pricing in only a 26.6% probability of a hike at that meeting.
The Durable Goods Orders Report for January isn't necessarily going to change the market's view of things either. It was relatively disappointing, excluding transportation orders.
Briefly, total orders increased 1.8% month-over-month, as expected, with transportation equipment orders up 6.0% with the help of a 69.9% increase in nondefense aircraft and parts orders and a 59.9% increase in defense aircraft and parts orders. Excluding transportation, durable goods orders declined 0.2% following an upwardly revised 0.9% increase (from +0.5%) in December.
The drop in orders, ex transportation, featured a 1.6% decline in orders for primary metals, a 1.6% decline in orders for computers and electronic products, and a 0.4% decline in nondefense capital goods orders excluding aircraft.
The latter is regarded as a proxy for business spending. Shipments of nondefense capital goods excluding aircraft were down 0.6%, which will be a negative input for Q1 GDP forecasts.
The key takeaway from the report is that the "hard" data indicates business spending declined at the start of the year, which is contradictory of the spending optimism reported in the "soft" survey data.
There will be a number of other economic releases throughout the week, as well as a bevy of Fed speakers, including Dallas Fed President Kaplan (an FOMC voter) today at 11:00 a.m. ET and Fed Chair Yellen and Fed Vice Chair Fischer on Friday.
Their remarks will be closely watched along with President Trump's speech before Congress on Tuesday night. In the meantime, there will continue to be a lot of tape watching.