Stocks are poised for a positive open today. Prior to today’s opening bell, investors are receiving additional news on the health of the domestic economy, following important inflation data released earlier.
For the month of December, housing starts totaled a solid 1.5 million, versus the outlook for 1.33 million and November’s tally of 1.29 million. Notwithstanding elevated demand, new home construction declined through much of 2024. There’s been sustained interest in building low-cost starter homes, but high supplies of multi-family dwellings have made real-estate venture capitalists a bit more conservative. Higher mortgage rate are a damper on the overall sector. We note that last month’s building permits came in at a decent 1.48 million, compared to economists’ consensus estimate of 1.46 million, and the preceding-month level of 1.51 million. Since hitting a low this past May, permit applications have risen, albeit haltingly. That’s cause for some optimism this year.
Also before the ringing of the trading bell, Wall Street will ponder numbers on industrial production, which may have grown in December, in contrast to a decline in November. Another potential positive could come by way of U.S. capacity utilization, anticipated to show a modest improvement. In 2024, industrial production swung between indications of expansion and contraction each month. Capacity utilization has softened since June of last year, reflective of stubbornly slow momentum in domestic manufacturing.
Stocks have been rather volatile this week, but the major market indexes look to hold on to gains. Through Thursday’s close, the blue-chip Dow Jones Industrial Average, the broader Standard & Poor’s 500 index, and tech-heavy NASDAQ composite and broader Standard & Poor’s 500 index, were up 2.9%, 1.9%, and 0.9, respectively. During the week, tech issues found it tough going, given lingering worries about inflation and competition from high-quality government bonds; the 10-year U.S. Treasury note has flirted with an attractive yield of 5.0%.
Lending support to the indexes on Wednesday were reports of slightly lower consumer-sector inflation. Too, most notably on that day, the nation’s top banks, JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC), Morgan Stanley (MS), and Citigroup (C), posted strong share-price gains, thanks to very favorable earnings reports. This looks to be a good year for the investment banking community. President-elect Donald Trump’s plans to pull back on regulation might spark accelerated merger & acquisition activity.
The extent to which Mr. Trump will be able to reduce regulation, limit immigration, and impose import tariffs has weighed on the stock indexes. Many on the Street are concerned such policies will raise inflation and prompt the Federal Reserve to reverse course and increase short-term interest rates. The Fed meets at the end of this month to decide on any changes to the federal funds rate, currently 4.25%-4.50%. Most economic experts look for rates to be held steady. The outlook for total rate cuts this year, after a one-point reduction in 2024, has become more conservative. Central bank officials seem to be hinting at one or two one-quarter-point moves. Some Wall Streeters are saying there might not be any further cuts at all, depending on trends in goods and services prices.
We continue to advise investors to focus on stable, large-cap equities in industry leaders. Some exposure to small- and mid-cap issues, as well as long-dated Treasurys, is warranted. - David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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