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The bid that was in the stock market yesterday has faded away this morning. Currently, the S&P 500 futures are down 23 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 144 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are down 111 points and are trading 0.2% below fair value.
This move is indicative of the churning action seen in the market since early December.
Fiscal and monetary policy uncertainty have been root causes of the churn along with valuation concerns. They continue to be enmeshed today with President Trump teasing the implementation of reciprocal tariffs soon, Fed Chair Powell heading to Capitol Hill at 10:00 a.m. ET to deliver his semi-annual monetary policy report, and the market cap-weighted S&P 500 trading at 22.2x forward twelve-month earnings, which is a 22% premium to its 10-year average.
The stock market won a reprieve of sorts in mid-January when long-term rates came down in the wake of the December CPI and PPI reports, yet long-term rates are up this morning with the January CPI and PPI reports on tap for release Wednesday and Thursday, respectively. Also, there is a $58 billion 3-yr note auction today with results at 1:00 p.m. ET.
The 10-yr note yield is up four basis points to 4.53%, mirroring a bump in rates in most sovereign bond markets that will likely be attributed to worries about tariffs inviting increased inflation pressures. Notably, President Trump announced 25% tariffs on steel and aluminum imports will go into effect March 8 and the EU summarily said it will announce firm and proportionate countermeasures to the steel and aluminum tariffs.
One can expect the tariff news to keep coming, as we discussed in The Big Picture column posted on Friday.
The earnings news keeps coming, too. Dow component Coca-Cola (KO) is up 3.6% after its better-than-expected results. Humana (HUM), DuPont (DD), and AutoNation (AN) are other luminaries trading higher in pre-market action after their reports.
Still, the impact of their results has been outweighed by the impact of a pullback in several of the mega-cap stocks and the bump in long-term rates.
It's not a big impact, as the relatively modest move by equity futures market suggests, but it's enough of an impact to keep the churn going.
