Stocks are poised for a positive open today, based on the futures market. Investors are weighing comments made by Chicago Federal Reserve President Austan Goolsbee early this morning. Other Fed officials, more specifically, Fed Vice Chair for Supervision Michael Barr and San Francisco President Mary Daly, also will be speaking this afternoon on current trends in the domestic economy, as well as central bank policy. Altogether, we don’t expect any new thoughts on the current business situation or short-term interest rate policy that would significantly veer from what Chairman Jerome Powell and the Federal Open Market Committee have been guiding, up to now.
Shortly, the University of Michigan will release its preliminary January figure for the U.S. Index of Consumer Sentiment. This measure has been improving, albeit haltingly, since June of 2022. Last month, it spiked to 69.7 from 61.3 in November. Notwithstanding the negatives of elevated inflation and borrowing rates, low unemployment, wage gains, and solid consumer spending suggest a positive reading. Around the same time that the sentiment gauge is reported, investors will get an update from the National Association of Realtors on existing home sales. Last November, home sales perked up to 3.82 million from a recent low of 3.79 million in October. Expectations are for a slight advance in December, to 3.83 million. Lately, the average rate on conventional 30-year mortgages has come down to about 6.6%, versus a peak of 7.8% last October. The increased likelihood of cuts in the federal funds rate (5.25%-5.50%) later this year has helped to reduce the cost of borrowing for a home purchase.
The Federal Reserve next meets at the end of this month. Among economists and Wall Street pundits, the consensus is that the central bank will decide not to change short-term rates. Most notably, next week, the Fed will parse Personal Consumption Expenditures Price Index data for the month of December, as well as the latest on personal income and personal spending. We’re cautiously optimistic this data will continue to show that the economy is headed toward a “soft landing,” that is, a slowing in business momentum and easing inflation, without the occurrence of a recession. Assuming such a scenario holds true, the Fed seems likely to reduce the federal funds rate at least three times, in one-quarter-point increments, during the second half of 2024.
Thus far this year, share prices have been stressed, as more people are considering that the Fed might not cut rates the roughly six times Wall Street, and the bond market, has been expecting. Prospects for reductions as early as this March appear to be fading. Share prices are reacting to this changing investor sentiment. On a positive note, a favorable earnings report and revenue outlook from Taiwan Semiconductor Manufacturing Co. (TSM) lent a visible boost to technology issues and the major stock market indexes yesterday. Too, an analyst’s upgrade of Apple (AAPL) shares provided discernable support. Stocks seem on track to post gains for this week. The remainder of the in-progress corporate earnings season surely will influence share-price momentum in the near term. We expect decent Gross Domestic Product (GDP) growth this year, though probably not as strong as it was in 2023. Broadening conflict in the Middle East casts some uncertainty over the equities market. For now, chances look good for a modest GDP improvement in 2025.
We advise investors to stay with financially well-heeled industry sector leaders. In our view, the healthcare, financial, industrial, consumer staples, and tech sectors offer decent growth potential with solid downside protection. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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