The selling interest many think they will see after the stock market has made a big run hasn’t happened yet with any conviction, which is perhaps why the stock market continues to act in a positive-minded way. There is a fear of missing out on the margin that is keeping a bid in stocks.
That was evident yesterday with the Dow Jones Industrial Average and S&P 500 pushing to new record highs. It is evident again this morning with the futures market showing a lack of concerted selling pressure.
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 37 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 57 points and are trading 0.1% above fair value.
There is a bit of a wait-and-see mentality in this trade. That mentality isn’t rooted in any future piece of news as much as it is in the price action.
There is some key economic data on the near horizon, such as today’s Consumer Confidence Report at 10:00 a.m. ET, the New Home Sales Report on Wednesday, the weekly initial jobless claims report on Thursday, and the Personal Income and Spending Report on Friday.
These releases won’t be lost on the market, yet they are effectively playing the part of the backup singer with the price action itself being the star attraction right now.
Market participants are waiting to see if a consolidation trade gathers some steam or if there is ongoing resilience that squeezes in more cash from the sidelines.
There was a wave of stimulus measures announced by China overnight that squeezed a lot of flows into China’s equity markets. The Shanghai Composite surged 4.2% while Hong Kong’s Hang Seng jumped 4.1%. Those moves followed the news that the 7-day reverse repurchase rate will be lowered by 20 basis points to 1.50%, the required reserve ratio will be cut by 50 basis points, the down payment requirement for second-home buyers will be reduced to 15% from 25%, and there will be a CNY800 bln ($113 bln) liquidity support facility for stocks.
Chinese ADRs are showing relative strength in the early going for understandable reasons, yet the carryover effect of China’s stimulus actions has been less pronounced in foreign markets. The U.S. is a case in point, yet the seemingly lackluster response here can be explained away by the fact that the major U.S. indices have been in rally mode since their September 6 lows. To wit: the Nasdaq Composite is up 7.8% and the S&P 500 is up 5.9%.
Some other holdbacks include festering valuation concerns with long-term rates moving higher after the Fed’s rate cut, rising energy prices that are piquing some inflation angst, the specter of a possible shutdown of East Coast and Gulf Coast ports on October 1, and weakness in retailer AutoZone (AZO) after an earnings miss.
These items might be holding things back, yet the broader price action still isn’t inciting any meaningful backup in the market ahead of the economic releases at 9:00 a.m. ET (July FHFA Housing Price Index and July S&P Case-Shiller Home Price Index) and 10:00 a.m. ET (September Consumer Confidence), and the $69 billion 2-yr note auction at 1:00 p.m. ET.
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Originally Posted September 24, 2024 – Price action is the star attraction
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