Before The Bell
Stocks are set to close out the month of October with sizable gains, but Friday’s session appears headed for a lower opening on indications that shortages of parts and labor are weighing on some big companies’ earnings.
The bulls regained their vigor in recent weeks following a September that saw the major averages pull back modestly. Stocks were probably due for a breather, and problems such as inflation, supply-chain difficulties, and the direction of fiscal and monetary policy, all weighed on sentiment.
The market roared back on the strength of earnings, and as investors were able to look past recent difficulties. In the end, consumer demand is holding up well, even given some problems in getting products to end users.
That line of thinking pushed shares higher on Thursday, when the Dow Jones Industrial Average jumped 240 points; the S&P 500 climbed 45 points; and the NASDAQ shot up 212 points. The S&P and the NASDAQ closed at record highs. Smaller company stocks also performed well, with the Russell 2000 climbing 45 points.
The gains came about despite notable deceleration in the nation’s third-quarter GDP. The Commerce Department released data that showed only a 2.0% quarterly advance in the July-to-September period, versus a very impressive 6.7% pace in the second quarter.
But investors were in a forgiving mood since they pretty much banked on a slowdown as the Delta variant took a toll on trade and commerce.
More uplifting was a report from the Labor Department that showed initial weekly jobless claims fell to 281,000, or the lowest level since before the pandemic.
There are hurdles to clear if stocks are to continue their latest move higher, of course. The Federal Reserve meets next week and is widely anticipated that it will begin to reduce its asset purchase program. That might not be enough to tip the balance in favor of the bears. But the Fed is expected to start raising interest rates once it stops buying securities, probably by mid-2022.
The bond market is already looking for higher rates, with the yield on the 10-year Treasury note now near 1.60%, after beginning 2021 below 1.00%. Signs that inflation is not calming down could push yields higher still. A shift to the viewpoint that considers the sales cycle being continually pushed out could also prove an obstacle for stockholders. That might make volatility more of a factor ahead.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
