The futures market implies a positive open to this new trading day. Before the bell, the U.S. Census Bureau released its advance report on durable goods orders for the month of September. Headline numbers showed a sizable 0.8% decline, versus economists’ consensus, more-conservative, estimate for a 1.0% decrease. In August, orders were revised from a flat reading to also down 0.8%. New orders for manufactured goods have mostly been positive, thus far, this year, but the data is quite volatile. Sharp declines were posted in January and June, while a big gain was scored in July.
Excluding the volatile transportation sector, durable goods rose a firm 0.4% in September, compared to a recalculated prior-month gain of 0.6% (up from 0.5%). Such adjusted durable goods orders fell in January, May, and July, but advanced solidly in the remaining months, overall. Despite lingering inflation pressures, the economy continues to be on a firm footing.
Shortly, that is, at 10:00 a.m. Eastern, the University of Michigan will publish its final figures on consumer sentiment for October. Expectations are for confirmation that this measure slipped to 69.0 from 70.1 in September. Though sentiment was reasonably good through the first four months of 2024, it has waffled since May. Inflation has eased, but consumers, especially those at the low-income level, are still dealing with elevated prices for goods and services. It’s noteworthy that well-heeled consumers have pushed back some against higher-priced luxury offerings. Late this morning, Boston Federal Reserve President Susan Collins will speak on the economy and central bank policy.
Last month, as investors surely know, the Fed cut short-term interest rates by 50 basis points, to 4.75%-5.0%. This was after a long series of hikes started in early 2022 to fight inflation. At the time of the recent cut, Fed officials seemed to suggest that additional one-quarter percentage-point reductions, at each of their upcoming meetings, may be in order. Lately, a few of them, however, have said a pause might be prudent, given a rather healthy domestic economy and a stronger-than-expected employment sector. Expanding business activity poses the prospect of reignited inflation. In light of this possibility, the yield on the 10-year Treasury bond has risen, placing a bit of stress on the housing market and other areas of the economy. The higher bond yields have drawn some investment dollars away from the stock market.
This week, stocks appear on track to record a flat-to-down performance. Corporate earnings releases have been highly influential over the past several days. The technology-weighted NASDAQ composite has held up better, thanks, in part, to favorable earnings news from the likes of Tesla (TSLA) and NVIDIA (NVDA). Too, the broader Standard & Poor’s 500 has gotten some support from the tech issues, as well as AT&T (T), General Motors (GM), and Philip Morris International (PM). The blue-chip Dow Jones Industrial Average has lagged, hurt by share-price weakness from Boeing (BA), notably due to difficult union negotiations, as well as the aircraft producer’s reported losses, International Business Machines (IBM), 3M (MMM), and Verizon Comm. (VZ). No doubt, investors are keen to see the third-quarter results from Alphabet (GOOG), Microsoft (MSFT), Meta Platforms (META), and Amazon.com (AMZN) due next week.
In recent days, stocks have also moved on economic data. The latest leading economic indicators gauge was soft, new home sales came in better than expected, existing home sales matched estimates, and initial jobless claims were quite modest. Next week, key data will roll in, regarding the Personal Consumption Expenditures price index, personal income and spending, employment, consumer confidence, manufacturing, construction, auto purchases, and pending home sales. We believe the data will continue to show the economy is healthy, employment is strong, and inflation is moderate.
Considering uncertainties surrounding inflation, Fed rate policy, the coming Presidential election, and persisting geopolitical risks, investors should weight their portfolios toward large-cap stocks in industry leaders. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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