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Updated: 07-Nov-24 09:09 ET
Some "FOMO" action helping to keep a bid in equity futures market

Investors didn't hold back yesterday expressing their enthusiasm for the election outcome. The S&P 500 recorded its best-ever, post-election move that was fueled by a belief that lower tax rates and less regulation will be powerful drivers of economic growth and, by extension, corporate profit growth.

That was the message embedded in the 5.8% gain registered by the Russell 2000, the surge in the financial stocks, the strength in the dollar, the outperformance of the cyclical sectors, and the breakout to record highs for the Dow Jones Industrial Average, Nasdaq Composite, S&P 500, and S&P 400.

The Treasury market had a less cheery reaction. Bond prices dropped and yields rose. That was in response to the growth outlook, but intermingled with that were worries about inflation heating up again and deficit spending continuing to increase the national debt. The 2-yr note yield went as high as 4.29% before settling at 4.27%, up six basis points. The 10-yr note yield kissed 4.48% before settling at 4.43%, up 14 basis points.

Treasury yields are more subdued this morning, as are the equity futures. The 2-yr note yield is down five basis points to 4.22% and the 10-yr note yield is down four basis points to 4.39%.

The S&P 500 futures are up 16 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 107 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up nine points and are trading 0.1% above fair value.

Following yesterday's big rally, it is notable that the equity futures market has maintained a positive disposition. There is a bit of a fear-of-missing out ("FOMO") component in the futures trade, but there is also perhaps a bit of reserve to see if this market can keep running on the back of stretched valuations.

There are also some misgivings about how many rate cuts the Fed will actually implement in coming months. It is all but assured that there will be a 25-basis points cut in the target range to 4.50-4.75% at today's FOMC meeting, but with the wealth effect boosted by record stock prices, core-PCE inflation sitting at 2.7% yr/yr, the strong likelihood of increased tariff actions next year, and the potential for disposable income to be boosted by lower tax rates, the Fed might find reason to take a more conservative view of the easing path ahead.

That thinking may not come out explicitly at Fed Chair Powell's 2:30 p.m. ET press conference, but market participants will be listening anxiously to see if it is implied in either his tone or qualitative remarks.

In related central bank news, the Bank of England voted 8-1 to cut its policy rate by 25 basis points to 4.75%, as expected; Sweden's Riksbank cut its policy rate by 50 basis points to 2.75%; and the Norges Bank left its policy rate unchanged at 4.50%.

This morning's economic data is unlikely to upset the Fed's thought process as it was largely in-line with expectations.

Initial jobless claims for the week ending November 2 increased by 3,000 to 221,000 (Briefing.com consensus 222,000). Continuing jobless claims for the week ending October 26 increased by 39,000 to 1.892 million. That is the highest since November 13, 2021.

The key takeaway from the report is essentially the same as last week. Layoff activity remains calm, but for employees who do get laid off it is more challenging to find a new job, which is a reality consistent with a softening labor market.

Separately, Q3 nonfarm business sector labor productivity increased 2.2% in the third quarter (Briefing.com consensus 2.3%) following a downwardly revised 2.1% (from 2.5%) for the second quarter. Unit labor costs increased 1.9% (Briefing.com consensus 0.5%) following an upwardly revised 2.4% (from 0.4%) in the second quarter.

The key takeaway from the report is that productivity growth is helping to keep labor costs in check.

The economic data was layered on top of a huge mountain of earnings results released since yesterday's close. Qualcomm (QCOM) and Lyft (LYFT) are winning plaudits for their reports while Hershey (HSY) and Rockwell Automation (ROK) are not. These companies are just a tiny sliver of the reporting cohort. Be sure to check out Briefing.com's Earnings Results and Earnings Guidance calendars for the full rundown of earnings releases.

--Patrick J. O'Hare, Briefing.com

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