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There wasn't a lot to be said for the S&P 500's performance yesterday -- until all of a sudden there was. The S&P 500 had been locked in a narrow trading range, but broke out of that range in the final 10 minutes with a burst of buying interest that culminated in a new all-time high.
There wasn't a confetti drop, or anything like that, but there was a celebration of the market's ongoing resilience to selling pressure. As it so happens, there isn't much to be said for the market's performance this morning.
Currently, the S&P 500 futures are down 13 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 35 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 120 points and are trading 0.3% below fair value.
There isn't a pinpoint explanation for the negative leaning. There is a range of ostensible explanations:
- Tariff worries (President Trump said the auto tariff rate will be in the neighborhood of 25% starting April 2, and that he is also considering tariffs for pharmaceuticals and semiconductors)
- Valuation concerns (the market cap-weighted S&P 500, at 22.4x forward 12-month earnings, trades at a 22.4% premium to its 10-yr average)
- Consolidation interest (the S&P 500 is up 3.5% from the February 3 "DeepSeek low")
- Rising Treasury yields (the 10-yr note yield is up nine basis points this week to 4.57%)
- Disappointing housing market insight (Toll Brothers (TOL) missed quarterly expectations and noted affordability constraints and growing inventories in certain markets are pressuring sales - especially at the lower end)
It is easy to make too much of any of these explanations, so we won't, other than to say these thoughts, in aggregate, are contributing to a lull in the record-setting action.
A lot can change in the cash session, yet there aren't any decisive headline drivers at the moment. By and large, participants look to be waiting patiently to see if the price action supports follow through on yesterday's breakout move.
The January Housing Starts and Building Permits Report didn't support much. It was mixed. Housing starts declined 9.8% month-over-month to a seasonally adjusted annual rate of 1.366 million (Briefing.com consensus 1.400 million) from an upwardly revised 1.515 million (from 1.499 million) in December. Building permits rose 0.1% to a seasonally adjusted annual rate of 1.483 million (Briefing.com consensus 1.450 million) from a downwardly revised 1.482 million (from 1.483 million) in December.
The key takeaway from the report is that there was no growth in starts or permits for single-family housing units, which will contribute to ongoing affordability constraints in the existing home market, which is short on inventory. Single-unit starts were down 8.4% month-over-month while single-unit permits were flat.
The Treasury market's reaction to the data was muted. The 2-yr note yield is up one basis points to 4.31% and the 10-yr note yield is up three basis points to 4.57% (where they were just before the release).
There is a $16 billion 20-yr bond auction today, with results at 1:00 p.m. ET, that will precede the release of the FOMC Minutes for the January 28-29 meeting at 2:00 p.m. ET. With Fed Chair Powell sharing his semi-annual monetary policy testimony last week, and various Fed officials since that January meeting talking about not needing to be in a hurry to adjust the policy rate, it would be a surprise if the minutes had some real market-moving energy in them.
