Almost Nothing in Return

The stock market struggled Thursday, weighed down by a lack of sector leadership and a stronger dollar that curbed speculative interests.  Early activity in the futures trade suggests the market will continue its downward drift when the opening bell rings.

Some of the headlines keeping buyers on the sidelines for the time being include a disappointing earnings report from Dell (DELL), disarming comments from PIMCO head Bill Gross, who mused about the prospect of easy monetary policy raising the systemic risk of new asset bubbles, and ECB President Trichet chattering about withdrawing liquidity measures in due time.

In addition, there are reports that Asian policymakers are talking about the possibility of imposing capital controls in a bid to prevent asset bubbles in local markets.

This battery of news has a negative hue to it as it relates to the stock market, yet the S&P futures are foreshadowing a modest opening decline of about 0.6%.

The takeaway is that there is a lot to ponder this morning, yet the stock market is not allowing itself to be consumed with negative thoughts just yet.  

Strikingly, there appears to be a different train of thought in the Treasury market where the yield on the 3-month Treasury bill hit 0.005% yesterday.  Essentially, investors at that yield are not concerned with a return on their money so much as they are concerned with the return of their money. 

To say the least, the interest in parking money at the front end of the Treasury curve for almost nothing in return is peculiar in the face of continued strength in the stock market (notwithstanding yesterday's trade).  It is a tacit statement that the road ahead may not be as smooth as equity investors would like to believe.

It is a fitting trade given the heightened level of complacency we talked about earlier in the week surrounding the ease of the dollar-funded carry trade.

On a related note, the dollar index (+0.5%) is stronger this morning and another guidepost for the early negative bias.

Given the absence of any economic data or Fed speak on this options expiration day, we expect participants to eye the greenback, and the performance of the financial and technology sectors, for directional cues.

--Patrick J. O'Hare, Briefing.com