Buy-the-dip action in play

It was a weak day yesterday for the stock market as bond yields, oil prices, and the strength of Hurricane Milton all rose. Things are looking a little better this morning with some Pavlovian buy-the-dip interest coming into play.

Currently, the S&P 500 futures are up 20 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 71 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 46 points and are trading 0.1% above fair value.

A 1.7% pre-market gain in NVIDIA (NVDA) is helping to boost things. Bloomberg reports that Hon Hai Precision is aiming to increase capacity to meet demand for artificial intelligence products.

Gain in other mega-cap stocks are an additional underpinning factor for the equity futures trade, although Microsoft (MSFT) is lagging, trading flat on news of an Oppenheimer downgrade to Perform from Outperform that was tied to concerns about FY25 estimates being too high.

A prevailing question today is, will the buy-the-dip inclination succeed (again) or will there be a tonal shift where participants sell into strength? The answer may have a lot to do with market rates.

The 10-yr note yield is pushing higher, currently up one basis point to 4.04%, while the 2-yr note yield is down two basis points to 3.98% but up from an overnight low of 3.94%. There will be a $58 billion 3-yr note auction today with results announced at 1:00 p.m. ET.

The move in market rates occurred in front of the release of the August Trade Balance Report, which itself was greeted with a muted response.

The trade deficit narrowed to $70.4 billion in August (Briefing.com consensus -$71.3 billion) from a downwardly revised $78.9 billion (from -$78.8 billion) in July. The improvement was the result of exports being $5.3 billion more than July exports and imports being $3.2 billion less than July imports.

The key takeaway from the report is that the net exports component for August will be a positive input for Q3 GDP forecasts.

The update from China’s National Development and Reform Commission (NDRC) was not positive for Hong Kong’s Hang Seng Index. It plunged 9.4% on Tuesday after the NDRC commented on the implementation of prior stimulus, but did not announce any new stimulus measures. China’s Shanghai Composite nonetheless gained another 4.6% on the return from the Golden Week holiday but finished well off its high (+10.1%) for the session.

Oil prices are coming down from recent highs. WTI crude futures are off 1.8% to $75.73/bbl and Brent crude futures are off 1.8% to $79.47/bbl. Hurricane Milton’s strength has been tempered to Category 4 from yesterday’s Category 5 in open water. Milton is anticipated to make landfall on Florida’s west-central coast sometime Wednesday evening or Thursday morning.

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Originally Posted October 8, 2024 – Buy-the-dip action in play