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If the S&P 500 can avoid a decline greater than 0.5% today, and the Nasdaq Composite can avoid a decline greater than 0.8%, then they will have achieved their fifth straight weekly gain. It has been a nice run during a period (September-October) that has a reputation for tripping up the market.
The market will be a little slow-footed coming out of the gate this morning, but this market has proven over and over during this five-week stretch -- and all year for that matter -- that it isn't how you start, it's how you finish.
When the market goes down, there has been a pool of buyers ready to buy the dip. That readiness has been reinforced by the Fed's shift to cutting rates, the economy's continued strength in spite of the prior rate hikes, and a renewed faith in the so-called "Fed put," which is to say the market believes the Fed will be quick to step in with policy accommodation to prevent a market meltdown that would disrupt the smooth functioning of the financial system.
Currently, the S&P 500 futures are down five points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 62 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down five points and are trading fractionally below fair value.
The equity futures market is processing a batch of better-than-expected earnings reports from JPMorgan Chase (JPM), Wells Fargo (WFC), and BlackRock (BLK), a disappointing robotaxi reveal that has Tesla (TSLA) down 6.8% [but Uber (UBER) up 5.1%], and a Producer Price Index report that was pleasing at first blush, but not as pleasing on a closer look.
Briefly, the Producer Price Index for final demand was unchanged month-over-month in September (Briefing.com consensus 0.1%). The Producer Price Index for final demand, excluding food and energy, was up 0.2% month-over-month (Briefing.com consensus 0.2%).
The month-over-month reads were the pleasing components. The year-over-year changes were not as pleasing. The Producer Price Index for final demand rose 1.8% year-over-year, a smidgen below the upwardly revised 1.9% increase (from 1.7%) seen in August, but above the 1.6% increase expected for September. The Producer Price Index for final demand, excluding food and energy, increased 2.8% year-over-year. That was above the upwardly revised 2.6% (from 2.4%) for August and the 2.7% increase expected for September.
The key takeaway from the report is that producers are still tangling with elevated prices, excluding food and energy, which means the Fed is still going to have to tangle with inflation data that will make it harder at this stage to justify aggressive rate cuts.
Some whipsaw trading action in the Treasury market followed the PPI report. The 2-yr note yield, at 3.97%, is roughly unchanged from where it was when the report was released, but the 10-yr note yield, which is sensitive to inflation pressures, is at 4.10%, up a basis point from where it stood when the report came out.
The 10-yr note yield may end up holding the key that unlocks the stock market's prevailing direction today. Another leg higher and the stock market may find itself getting tripped up.
