Before The Bell
Stock futures are pointing to a solid opening this morning as investors look to build on recent gains to close out the week. Better-than-expected earnings and economic data are fueling optimism. There are also some hopes that inflation might be less imposing by next year.
Momentum took hold in a big way on Thursday with the biggest rally on Wall Street since March. The Dow Jones Industrial Average jumped 535 points; the S&P 500 shot up 74 points; and the NASDAQ soared 252 points. Small-cap stocks also participated in the advance, with the Russell 2000 gaining 1.4%.
The market’s internal measures underscored the strength, with advancing issues far outpacing decliners and more stocks hitting 52-week highs than lows. All sectors moved higher.
Stocks had been in a choppy, downward-tilting pattern for more than a month. Concerns about inflation, interest rates, Fed policy, higher labor and input costs, rising energy prices, and legislative snarls in Congress all took a toll on sentiment.
The market was probably due for a breather anyway. After coming a long way in a relatively short period of time, valuations were not as attractive as at the beginning of the current leg of the bull market 19 months ago.
Good earnings from some big companies in the banking and healthcare sectors lifted spirits notably in the week’s next-to-last session, though.
Economic data was also favorable, as weekly initial jobless claims fell below 300,000 for the first time since the pandemic began, according to the Labor Department. A gauge of inflation at the wholesale level also rose less than thought in September.
But inflation could be a lingering issue until it is clearly tamped down. The effects of the pandemic are lasting much longer than almost anyone figured, and could cause inflation to run hotter than the Federal Reserve’s 2.0% target for a while.
Rising oil prices are contributing to the inflation picture. Domestic oil quotations rose to $81.31 a barrel in New York trading yesterday. The average cost of a gallon of gasoline is now $3.31 a gallon, up from $2.18 a year ago, according to AAA.
In short, investors may not be completely out of the woods with respect to recent concerns, including inflation. But there is sizable cash on the sidelines to provide market support when the news is more heavily weighted toward the positive side.
Meantime, this morning’s data on retail sales for September came in much better than expected, which is a clear plus for the economy.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
