Page One
Briefing.com Summary:
*The stock market is seeing follow-through selling interest ahead of the open.
*This morning's economic data was categorically good for growth.
*President Trump wants to see a $1.5 trillion defense budget for FY27 versus $1.0 trillion.
We noted yesterday how the stock market had gotten off to a good start in 2026. Some of that goodness was minimized yesterday, though, by profit-taking interest in some of the leadership areas like small-cap stocks, semiconductors, Dow components, and high-beta issues.
There is a continued move this morning to take some money off the table despite a slate of economic data that was better than expected.
Currently, the S&P 500 futures are down seven points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 35 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 183 points and are trading 0.4% below fair value.
It is a bit surprising that the futures didn't turn higher after the data, which was categorically good for growth.
- Q3 productivity increased 4.9% in the third quarter (Briefing.com consensus: 2.5%) following an upwardly revised 4.1% (from 3.3%) in the second quarter. Unit labor costs decreased 1.9% (Briefing.com consensus: 0.8%) following a downwardly revised 2.9% decline (from 1.0%) in the second quarter.
- The key takeaway from the report is that it is the golden ticket for the economy (and the Fed, per chance), as it reflects strong growth without labor cost inflation.
- Initial jobless claims for the week ending January 3 increased by 8,000 to 208,000 (Briefing.com consensus: 217,000). Continuing jobless claims for the week ending December 27 increased by 56,000 to 1.914 million.
- The key takeaway from the report is that initial claims are quite low to support a view that consumer spending should hold up; however, continuing claims remain high enough to support a view that the Fed will worry enough about a softening in the labor market (i.e., weak hiring activity) such that it remains inclined to pursue easier monetary policy.
- The U.S. trade deficit in October narrowed sharply to $29.4 billion (Briefing.com consensus: -$61.3 billion) from an upwardly revised deficit of $48.1 billion (from -$59.6 billion) in September. The improvement resulted from exports being $7.8 billion more than September exports and imports being $11.0 billion less than September imports.
- The key takeaway from the report is that the headline deficit number is the lowest since June 2009. A residual takeaway is that the improvement clearly has something to do with the introduction of higher tariff rates that have detracted from import demand.
Looking beyond the economic data, defense stocks are rallying on President Trump's pronouncement that he would like to see a $1.5 trillion defense budget for FY27 versus $1.0 trillion. There are questions as to whether such a request would pass the sniff test of budget hawks in Congress, who are also taxed (no pun intended) with other narratives that include a desire to buy Greenland, efforts to extend ACA subsidies, running Venezuela for an extended period, and paying a tariff dividend to many Americans.
As an aside, it is possible that the Supreme Court this Friday issues a ruling that invalidates the president's IEEPA tariffs.
That may be why the Treasury market isn't looking enamored with the otherwise encouraging Q3 productivity data. Unit labor costs are falling, but government costs don't appear to be aligned on the same trajectory.
The 2-yr note yield is up two basis points to 3.49%, and the 10-yr note yield is up four basis points to 4.18%.
