Objectively, it appeared that the stock market liked what it heard yesterday from Fed Chair Powell. The major indices, which were trading higher ahead of his press conference, extended their gains in the midst of — and following — his press conference.

The reported basis for the positive response was a belief that the Fed Chair effectively lowered the temperature on the future pace of rate hikes. The softness seen in the futures market this morning is being pinned in part on the idea that the stock market overreacted to what the Fed Chair said yesterday.

It isn’t just that, however. Meta Platforms (META) had a disappointing report and outlook; Qualcomm (QCOM) cut its global handset forecast ahead of Apple’s (AAPL) report after today’s close; and Best Buy (BUY) cut its Q2 sales outlook because it saw customer demand for consumer electronics further soften in the quarter.

Those headlines are only scraping the surface of what was an extremely busy period of earnings reporting after yesterday’s close and before today’s open, which featured highlights, like Ford’s (F) report, and disappointments, like Stanley Black & Decker’s (SWK) guidance, as well as results from Dow components Merck (MRK) and Honeywell (HON).

Meanwhile, there were some interesting political dealings that featured an agreement between Senators Manchin and Schumer on the provisions of the Inflation Reduction Act of 2022, and passage in the Senate of a $280 billion bill designed to fend off industrial competition from China and which includes $52 billion to expand semiconductor manufacturing capacity in the U.S.

Currently, the S&P 500 futures are down five points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 43 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 32 points and are trading in-line with fair value.

Economic data is also playing a prominent role in this morning’s dealings. It wasn’t good.

The Advance Q2 GDP Report indicated that real GDP decreased at a seasonally adjusted annual rate of 0.9% (Briefing consensus +0.5%), which marked the second straight quarter of contraction. Real GDP in Q1 was down 1.6%. Real PCE was up just 1.0%, which was the weakest growth rate since Q2 2020.

Personal consumption expenditures added 0.7 percentage points to growth, gross private domestic investment subtracted 2.73 percentage points (the change in private inventories subtracted 2.01 percentage points alone), net exports added 1.43 percentage points, and government spending subtracted 0.33 percentage points.

The key takeaway from the report is that it will stir the debate as to whether the U.S. economy is in recession. Regardless, it also makes it clear that the economic environment has undoubtedly weakened, which shouldn’t be a total surprise in light of more recent incoming data of late.

On a related note, initial jobless claims, which are a leading indicator, decreased by 5,000 for the week ending July 23 to 256,000 (Briefing consensus 253,000). The prior week’s number was revised up to 261,000 from 251,000. Continuing claims for the week ending July 16 decreased by 25,000 to 1.359 million.

The key takeaway from the report is that it connotes some softening in the labor market, although nothing to an extent that would support a recession argument vis-a-vis the current state of the labor market.

The Treasury market nonetheless is trading in tune with the slowdown argument and the potential that the slower growth devolves into a recession. The 2-yr note yield is down nine basis points to 2.91% and the 10-yr note yield is unchanged at 2.73%.

The move at the front of the curve is consistent with the notion that the Fed will soon slow the pace of its rate hi.