The key market driver, for now at least, remains the Federal Reserve and its monetary tightening actions. Yesterday, the minutes from the last Federal Open Market Committee (FOMC) meeting were released. The report showed that the lead bank will remain steadfast in its battle to tame inflation. This, of course, was old news.
Instead, the market, being more forward looking, was more interested in Wednesday’s other economic releases. There, the news was mixed. The Institute for Supply Management (ISM) reported that its Manufacturing Purchasing Managers Index, or PMI, showed further contraction in December. Last month’s reading came in at 48.4%, versus 49.0% for November. (Numbers above 50 indicate expansion, while those below 50 mean that activity is slowing.) Notably, November marked the end of 29 consecutive months of growth. This news, somewhat counterintuitively, was welcomed by the market, as it provided further evidence that the Fed’s actions are having some effect. Indeed, December’s figure was the lowest PMI reading since May of 2020, when the pandemic was tightening its grip on the world.
On the other hand, the Bureau of Labor Statistics reported that the number of job openings in the U.S. remained high in November, at 10.46 million, down slightly from the upwardly revised figure of 10.51 million for October. Another sign that the labor market remains hot was that the number and rate of people quitting jobs of their own volition were little changed month to month, at 4.2 million and 2.7%, respectively. These figures served to show that the central bank still has much work to do.
The somewhat conflicting economic reports made for a choppy session, but stocks managed to chalk up their first positive close for the new year on Wednesday. The Dow Jones Industrials moved up 133 points, or 0.4%, the S&P 500 gained 25 points (0.8%), and the tech-heavy NASDAQ moved up 71 points, or 0.7%.
As we approach the start of today’s session, U.S. stock futures have moved lower following news that private payroll figures for December came in stronger than expected. Specifically, ADP (Automatic Data Processing), reported that the private sector added 235,000 positions in December, about 80,000 more than estimated. In overnight trading, stocks in Asia were up. Meanwhile, the major European indexes are mixed. Elsewhere, oil prices have moved higher, with West Texas Intermediate up about 1.6%, to around $74 a barrel.
Tomorrow, traders will be sifting through the December nonfarm payrolls and average hourly earnings reports for further clues on the Federal Reserve’s next move. We’ll also get the ISM’s Services Index for December, which is widely expected to show that sector of the economy is still expanding, though likely at a slower rate. Additionally, we’ll get to see factory orders for November, where some contraction is expected. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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