The stock market appears headed for a mixed open today, based on futures trading. Prior to the bell, the U.S. Bureau of Labor Statistics (BLS) reported new inflation data for the month of September. The Bureau’s Producer Price Index (PPI) was unchanged in the 30-day span, versus economists’ outlook for an expansion of 0.1% and the August advance of 0.2%. Year on year, the index increased 1.8%, compared to an estimated 1.6% and the prior-month gain of 1.9%. BLS’s core PPI measure, which strips out volatile food and energy prices, held steady at a 0.2% rate, as was anticipated. Annualized, the core PPI picked up a modest 2.8%.
Wall Street has not reacted much to this fairly benign overall PPI data. The data follows slightly greater-than-expected Consumer Price Index (CPI) growth figures that were released Thursday morning. Investors have become a bit more concerned that the Federal Reserve has not yet fully contained inflation. Should inflation strengthen in the near term, as we think is unlikely, it could prompt the central bank to suspend its rate-cutting process. Recent employment data, by way of initial jobless claims, points to further signs of weakness in the jobs market, even after adjusting for the impacts of a hurricane and a strike by union employees at Boeing (BA). Fed Chair Jerome Powell will probably continue to focus on employment in determining future action on short-term interest rates. Preliminary October consumer sentiment data, due within the hour, could get his attention, as well.
In the current week, the major domestic stock market indexes appear on track to score modest improvements. Through Thursday’s close, the tech-heavy NASDAQ composite, broader Standard & Poor’s 500 (S&P 500) index, and the blue-chip Dow Jones Industrial Average were up 0.82%, 0.53%, and 0.26%, respectively. The S&P 500 and the Dow hit new records in recent days, while the NASDAQ made progress toward revisiting its all-time high. Year to date, the NASDAQ and the S&P 500 have both posted impressive gains of 20%+, and the Dow is up a respectable 12.6%.
Next week, the Fed and investors will parse more data points on the U.S. economy. The data will come in the forms of the Empire State (New York) manufacturing survey, the import price index, initial jobless claims, retail sales, industrial production, capacity utilization, business inventories, housing starts, building permits, and the home builder confidence index. At the same time, the September-quarter corporate earnings season will continue to unfold. We would not be surprised to see additional evidence of an easing, but still fairly healthy, domestic economy. Wall Street remains hopeful that the central bank can execute a soft landing, avoiding a recession, as we believe it can. The Fed next meets in early November, and the word on the Street remains that a one-quarter-point cut in the federal funds rate, to 4.50%-4.75%, is on tap.
If there are no big surprises, we expect the market indexes to make at least incremental positive progress to the end of this year. That said, share-price volatility could perk up, moment to moment, given uncertainties on the earnings, employment and inflation fronts, as well as in the geopolitical arena, especially in the Middle East and East Asia. Investors ought to keep a hefty weighting of high-quality stocks in their portfolios, supplemented with top-rated bonds, cash instruments, and small and mid-cap stocks. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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