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The stock market had a good start to this shortened week of trading, having been enthused by President-elect Trump's decision to nominate Scott Bessent for Treasury Secretary. The enthusiasm hasn't gone away entirely, but it has been dialed down a notch this morning by another decision made by President-elect Trump.
Specifically, Mr. Trump said he will impose an additional 10% tariff on China, and 25% tariffs on Mexico and Canada, on day one of his administration and keep them in place until the flow of migrants and fentanyl into the United States stops.
The tariff plan has naturally created a little nervousness about inflation risk that has tempered buying interest in a market that has acted in a self-assured manner, meaning it has traded seemingly with a bullish bias no matter the news.
The Dow Jones Industrial Average, S&P 500, and Russell 2000 hit new all-time highs yesterday, catalyzed by a welcome drop in interest rates that followed news of the Bessent nomination and a strong 2-yr note auction.
Today the 2-yr note yield is down three basis points to 4.24% and the 10-yr note yield, which is more sensitive to inflation pressures, is up one basis point to 4.28%. There will be a $70 billion 5-yr note auction with results announced at 1:00 p.m. ET. That will be followed by the release of the FOMC Minutes for the November 6-7 meeting at 2:00 p.m. ET.
Market participants will be analyzing the minutes to gauge the Fed's feelings about a December rate cut. The fed funds futures market is pricing in a 59.4% probability of a 25-basis points rate cut at the December meeting; and Minneapolis Fed President Kashkari (non-FOMC voter) said it is reasonable to consider a cut at that meeting, according to Bloomberg.
Other items driving the Treasury market today will be the release of the September FHFA Housing Price Index (prior +0.3%) and September S&P Case-Shiller Home Price Index (Briefing.com consensus 4.7%; prior 5.2%) at 9:00 a.m. ET, and the October New Home Sales Report (Briefing.com consensus 718,000; prior 738,000) and November Consumer Confidence Report (Briefing.com consensus 113.0; prior 108.7) at 10:00 a.m. ET.
Those reports will be digested along with a batch of mixed earnings results out of the retail space from the likes of Dick's Sporting Goods (DKS), Best Buy (BBY), Kohl's (KSS), Abercrombie & Fitch (ANF), and Burlington Stores (BURL), follow-through weakness in Bitcoin, and a 12% decline in shares of Dow component Amgen (AMGN) that has followed its Phase 2 trial update for its weight-loss drug MariTide.
Currently, the S&P 500 futures are up 14 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 63 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 155 points and are trading 0.4% below fair value.
