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The stock market has had some steely resolve in the face of the DeepSeek upset, the tariff drama, and some spotty performances from the mega-cap stocks. Some reports suggest this resolve is due primarily to the steely resolve of retail traders/investors who have been inclined to buy any dip.
Some will argue that they are pushing their luck, that they are gambling, or simply making a sport of things. The "animal spirits" of the retail crowd are stirring the ghosts of contrarian indicators, but all that aside, there is a sense that the trend will be their friend until it isn't -- and so far the price action, in general, has remained on their side.
A pullback in Treasury yields has been a catalyst for their resolve. The 10-yr note yield, which hit 4.80% on January 14, is at 4.42% today.
Yields dropped noticeably yesterday in the wake of weaker-than-expected Services PMI readings out of China, Europe, and the U.S. The inference is that the Treasury market was trading more on growth concerns than inflation worries.
Still, that did not shake the stock market's resilience, evidenced by the outperformance of the small-cap and mid-cap stocks and the market cap-weighed S&P 500 closing at its highs for the session.
Currently, the S&P 500 futures are up 15 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up six points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 71 points and are trading 0.2% above fair value.
There is more resolve in those indications given that Qualcomm (QCOM) is down 5% after its report, Skyworks Solutions (SWKS) is down 27% after its report, Molina Healthcare (MOH) is down 8% after its report, Arm Holdings (ARM) is down 5% after its report, Ford (F) is down 6% after its report, and Honeywell (HON) is down 3% after its report and plan to split into three publicly-listed companies with the separation of its Automation and Aerospace segments.
However, Eli Lilly (LLY), whose market cap exceeds the combined market cap of all those companies, is up 0.7% after its report, so there you have it.
There are other upside movers of course, yet the overarching point is that the market is holding its ground close to all-time highs. This morning's data is helping in that regard.
Fourth quarter productivity increased 1.2% (Briefing.com consensus 0.8%) following an upwardly revised 2.3% (from 2.2%) in the third quarter. Unit labor costs increased 3.0% (Briefing.com consensus 2.6%) following a downwardly revised 0.5% increase (from 0.8%) in the third quarter.
The key takeaway from the report is that the productivity is on the rise, which will help temper inflation pressures. The 1.8% annualized rate of productivity growth in the current business cycle (starting Q4 2019) is higher than the 1.5% rate of the previous business cycle (Q4 2007 through Q4 2019).
Meanwhile, initial jobless claims for the week ending February 1 increased by 11,000 to 219,000 (Briefing.com consensus 213,000). Continuing jobless claims for the week ending January 25 increased by 36,000 to 1.886 million.
The key takeaway from the report is that there simply hasn't been a material increase in initial jobless claims, which would suggest there is some real weakening in the labor market. Hiring activity might have slowed, but the layoff activity does not impart an indication that employers think the economy is on the brink of a meaningful slowdown.
In other news, the Bank of England voted 7-to-2 to lower its official policy rate by 25 basis points to 4.50%. The two dissenting voters wanted a larger 50-basis points cut. This move has weighed on the pound. GBP/USD is currently -1.0% to 1.2383.
