The indices are trading up for the second day in a row but the news flow is chaotic and causing upside momentum to slow. Stocks have faded since the open but breadth is still running around even.
In the early going the market looked set to build on yesterday's celebration of the Fed's dovishness but a much weaker than expected ADP employment report caused some second thoughts. Weak employment raises the likelihood that the Fed will cut rates but it also means that there may be some real economic weakness. Low rates in a good economy are much different than low rates in a weakening economy.
Currently Fed futures indicate that the market is now expecting the Fed to cut interest rates three times before the end of the year. Market players have become conditioned to celebrate rate cuts, but if rate cuts aren't acting as an effective economic stimulus then there is going to be a very different market reaction when they can't go much lower
Jobs news on Friday is going to have more impact on this issue but the market may not be celebratory over rate cuts if there is some real economic fallout that are producing them.
Luckily for the market today there is hope that there may be some positive developments on Mexico trade later in the day. There have been a number of optimistic comments by both sides and there is great opposition to them by both business and politicians. The market is hoping for positive news later and that is keeping a bid under the market.
One of the bigger issues is that the FAANG names, with the exception of Apple (AAPL) , are back in negative territory. They are technically broken and they just aren't in a good buying position right now. That hurts sentiment and is not an issue that is going to be easily resolved.
It is no mystery that President Trump has wanted the Fed to cut interest rates. He has criticized Jerome Powell and talked about how much better growth would be with lower rates. Ironically Trump may now see those rate cuts he wanted as a result of stirring up trade wars with China, Mexico and others. It is unlikely that this was the primary intention but it does setup the potential for a strong market into the election next year if rates are low and trade issues resolved.
We have some choppy waters to navigate in the short term but it is an interesting dynamic if trade issues are eventually settled.