Before The Bell
Stock futures are pointing to a mixed open on Friday on signs of weakness in some big names on the NASDAQ. For the most part, though, investors have cheered the latest batch of corporate earnings and encouraging news on the economy this week. The S&P 500 closed at a record high on Thursday.
Yesterday’s price action saw the S&P 500 add 14 points; the NASDAQ climb 94 points; but the Dow Jones Industrial Average give back six points. Weak performance from International Business Machines (IBM), where a long-term shift in focus is progressing slowly, weighed on the Dow.
Energy-sector stocks were also laggards on a drop in oil prices. Quotations for the domestic blend of oil fell nearly $1.00 a barrel in New York trading, to $82.50. That is still a healthy valuation, but there are concerns that China’s economy is losing some steam. China is a big driver of demand for all types of commodities. Prices for industrial metals, such as copper, also slipped somewhat yesterday, hurting sentiment toward shares in the basic materials sector.
But the session also displayed a good measure of optimism, driven by how well many major companies are faring these days. Earnings are generally coming in strong, providing a reason to believe that profits may improve further in a post-COVID world.
Positive economic data helped sentiment, too. Weekly initial jobless claims fell to their lowest level since before the pandemic, according to the Labor Department. Sales of existing homes also rose 7% in September from the previous month in an indication of good demand for housing.
Still, there will be hurdles to clear for the market to continue its winning ways. Current inflationary trends are being driven by a number of factors, including wage gains, which could prove a stumbling block for businesses not able to pass along the higher costs. Investors seem likely to gravitate toward shares of companies displaying pricing power as a result.
Interest rates are beginning to reflect the approach of less accommodative Federal Reserve policy, as well. The yield on the benchmark 10-year Treasury note rose to 1.67% from 1.64% on Thursday. The Fed is expected to soon begin tapering its securities purchases. Late in 2022, the first interest-rate hike in quite some time is a possibility, according to Atlanta Fed President Bostic. If the thinking changes to believe an earlier rate hike is more likely, or if the Fed is seen as needing to do a lot of catchup in raising rates, it could be bearish for stocks.
For today and next week, though, the tone of earnings being reported will probably remain the driving force.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
