Before The Bell
Investors begin the month of October with their long-term optimism intact, although near-term sentiment has been tempered by a few unsettling developments. Market volatility rose materially in September as a result, and a degree of uncertainty is lingering. On the plus side, stock futures on Friday are pointing to a moderate bounce higher at the open.
The biggest problem facing the market may be that the effects of the coronavirus are lasting much longer than first imagined, and particularly abroad, where vaccination rates are lower. That has led to the well-publicized supply-chain disruptions that have dampened business and industry’s ability to meet customer demand.
Factory slowdowns, port backlogs, and driver shortages are some of the factors keeping goods from reaching warehouses and store shelves lately. These snags appear set to persist for a while.
In turn, the supply/demand mismatch is contributing to higher inflation as sellers raise prices to cover rising costs. The Federal Reserve’s position is that the inflationary backdrop will diminish as COVID-19 fades away. Based on that premise and barring a major setback in the economy, the Fed appears set to rein in monetary support by reducing securities purchases by yearend, and could hike interest rates later next year.
In the meantime, though, less inventory available to sell and the increased cost of doing business are weighing on GDP forecasts. Consequently, Wall Street has become a little anxious about what companies will say regarding their prospects when they report third-quarter earnings in the coming weeks.
Elsewhere, gauging the outcome of pending legislation in Washington is creating some discomfort, notably with respect to raising the U.S. debt ceiling. While the prospect of a default is low, the impact of not fulfilling the nation’s obligations is potentially very large. Investors are looking for cooler heads to prevail among their lawmakers so as to avoid a worst-case scenario. Congress did at least approve temporary funding on Thursday to avoid a government shutdown.
The increasing number of concerns came home to roost in the week’s next-to-last session, when losses totaled a steep 547 points on the Dow Jones Industrial Average and 52 points on the S&P 500. The NASDAQ held up better for most of the day before succumbing to late selling pressure and closing with a 64-point decline.
Most likely, the bulls will reassert themselves once signs that the damage caused by the coronavirus recedes to a greater extent. But that process is proving drawn out, and stock trading may remain choppy in the meantime.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
