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A stock market that is supposed to run into some selling interest after a huge run has instead been boosted by additional buying interest. Today's catalyst is the news that the U.S. and Japan reached a trade deal.
Currently, the S&P 500 futures are up 22 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up nine points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 238 points and are trading 0.6% above fair value.
The trade deal calls for Japan to invest, at President Trump's discretion, $550 billion into the U.S., of which the U.S. will receive 90% of the profits. The thrust of the deal, however, lies in the announcement of a 15% tariff rate for Japan's imports. That is lower than the 25% tariff rate that was staged to go into effect August 1, and, crucially, it applies to auto imports. Shares of Toyota Motor (TM) and Honda Motor (HMC) are up 12% and 11%, respectively, in pre-market trading.
Japan will also open its country to imports of U.S. cars and trucks, rice, and certain other agricultural products.
There is no doubt that Japanese investors breathed a sigh of relief about this deal. The Nikkei surged 3.2% on Wednesday. Global equity markets, in general, have reacted positively to the news. The STOXX Europe 600 is up 1.0%, as investors speculate about the U.S. and EU reaching a better deal soon.
The trade deal news has overshadowed the disappointing guidance from Texas Instruments (TXN), which has that stock trading 9% lower. Other chipmakers are falling in sympathy with TXN, but not NVIDIA (NVDA). It is up 1.2% in a move that is lending strong support to the broader market.
NVIDIA promises to be reactive to the earnings results that will be reported after the close by Alphabet (GOOG), Tesla (TSLA), and IBM (IBM). Other luminaries reporting will include Chipotle Mexican Grill (CMG), ServiceNow (NOW), T-Mobile (TMUS), CSX Corp. (CSX), and Las Vegas Sands (LVS).
The Q2 earnings reporting has been going the market's way, with the vast majority of companies exceeding consensus estimates. The reactions haven't always been positive, as AT&T (T), Hilton (HLT), Otis Worldwide (OTIS), and Enphase Energy (ENPH) are finding out this morning, mostly because there have been some deficiencies identified in the guidance.
Overall, though, there hasn't been that one report that has upended the market's generally positive worldview, which is why there is both pent-up angst and pent-up optimism with the mega-cap companies due to report their results over the next few weeks.
The same mentality holds true for most things, including economic data, interest rates, trade deals, and geopolitics. It is a happy-go-lucky time for the stock market right now, which is why meme stocks are back en vogue, hedging protection, as seen in the CBOE Volatility Index, has fallen by the wayside, and every dip gets bought.
The corollary to that, however, is that the downside can be appreciable if that worldview gets disrupted.
