Where we are: Dow futures are currently trading at 50860, up 110 points or 0.22% on the day. The cash Dow closed yesterday at 50669, and the futures have traded in a range of 50704-50904 so far today. This suggests a positive open in New York, potentially pushing the Dow to fresh record highs.
What’s driving it: Despite slight weakness in S&P 500 and Nasdaq futures, the Dow continues to find support, likely driven by strength in financial and consumer defensive sectors. The underlying strength in the US economy, as reflected in recent Costco sales data indicating strong gasoline demand, continues to underpin the market. Furthermore, while US 10Y yields are slightly higher at 4.439, the 2s10s spread remains positive at 0.46%, suggesting a less inverted yield curve and potentially easing recession fears. We see a supportive environment for continued gains in the Dow.
- Costco’s same-store sales rising 9.8% during its third quarter points to robust consumer spending.
- Net non-commercial positioning is moderately short at -10,765 contracts, suggesting room for further upside as shorts cover.
- The VIX is down to 16.29, reflecting decreased market volatility and increased investor confidence.
NY session focus: Focus for the New York session will be on monitoring the performance of key Dow components and any further developments regarding US-Iran relations, especially given its potential impact on oil prices and inflation. Keep an eye on the 10-year yield; a break above 4.50% could dampen enthusiasm. Initial resistance is at the intraday high of 50904. The trade that’s working is long Dow, short Nasdaq. The trade that’s at risk is short Dow given the overall positive momentum. The pain trade is a sudden risk-off move sparked by geopolitical jitters or a hawkish Fed surprise.