The color red (which on Wall Street denotes losses) is prominent in the equity futures market this morning. That should probably come as no surprise considering the S&P 500 has gone up in 10 of the last 11 sessions and the Russell 2000 has surged 11.7% over the last seven trading sessions.<\/p>\n\n\n\n
Currently, the S&P 500 futures are down 60 points and are trading 1.1% below fair value, the Nasdaq 100 futures are down 320 points and are trading 1.6% below fair value, and the Dow Jones Industrial Average futures are down 146 points and are trading 0.3% below fair value.<\/p>\n\n\n\n
The contention that the broader market is overbought on a short-term basis and due for a pullback is valid in its own right, yet it has been helped along this morning by some other news.<\/p>\n\n\n\n
A Bloomberg<\/em> report that the Biden Administration is discussing tighter export restrictions for semiconductors and semiconductor equipment going to China has caused an upsetting stir. NVIDA (NVDA)<\/strong> is down 3.9% and ASML (ASML)<\/strong>, which reported better-than-expected Q2 results and reaffirmed its full-year revenue outlook, is down 7.8%.<\/p>\n\n\n\n That weakness is demonstrative of losses across the widely-owned and heavily-traded space, which is going to be a key drag on the broader market. Separately, a remark from former President Trump that Taiwan should be paying the U.S. for its defense has created some geopolitical angst that is also weighing on the semiconductor group.<\/p>\n\n\n\n Elsewhere, a second quarter profit warning from Five Below (FIVE)<\/strong>, a second quarter revenue warning from Spirit Airlines (SAVE)<\/strong>, and disappointing second quarter results from J.B. Hunt Transport Services (JBHT)<\/strong> have taken some wind out of the market’s sails, piquing some concerns about a slowing economy.<\/p>\n\n\n\n Dow component Johnson & Johnson (JNJ)<\/strong> posted better-than-expected second quarter results, but trimmed its FY24 adjusted operational EPS, saying M&A costs have offset its improved performance. Shares of JNJ are flat in pre-market trading.<\/p>\n\n\n\n These corporate developments have blended with some economic data this morning that did little to alter the negative disposition seen in the equity futures market.<\/p>\n\n\n\n Total housing starts in June increased 3.0% month-over-month from a depressed base to a seasonally adjusted annual rate of 1.353 million (Briefing.com consensus 1.310 million); however, single-unit starts were down 2.2%. Total building permits jumped 3.4% month-over-month to a seasonally adjusted annual rate of 1.446 million (Briefing.com consensus 1.391 million); however, permits for single units — a leading indicator — were down 2.3%.<\/p>\n\n\n\n The key takeaway from the report is that, while it might have been better than expected relative to consensus estimates, it was not a strong report nor a particularly encouraging report for an inventory-constrained housing market in need of lower-priced, single-family homes.<\/p>\n\n\n\n The 2-yr note yield is up four basis points to 4.48% and the 10-yr note yield is up one basis point to 4.18%, so even the Treasury market is giving in to some selling pressure after a spirited run of late that has taken yields noticeably lower over the course of this month.<\/p>\n\n\n\n That is perhaps no surprise either.<\/p>\n\n\n\n What remains to be seen is how the market — and particularly the broader market — responds to this pullback activity. To that end, the behavior of the small-cap stocks will be a focal point.<\/p>\n\n\n\n —<\/p>\n\n\n\n