This morning is light on economic news, with the biggest report coming a half-hour into the trading day when the Institute for Supply Management, a Tempe, Arizona-based trade group, releases its September reading on nonmanufacturing (services) activity. Given the recent concerns about the health of the U.S. economy, Wall Street will be looking for any clues in the report about whether the consumer is starting to show some signs of fatigue. At the same time, we will get the latest data on factory orders, which, given the recent struggles of the manufacturing sector, is expected to reveal little growth, after the metric rose 5.0% in the prior month.
But before we get to those reports, we learned that initial jobless claims for the week ending September 28th totaled 225,000, which was up 6,000 from the previous week’s revised figure. This level is indicative of a tight labor market, but there are some signs that labor conditions are starting to soften. The equity futures, which were lower heading into the labor report, are presaging a modestly weaker start for the stock market when the trading kicks off stateside. Treasury yields were relatively unchanged on the jobless claims data.
The reports on the economy this week have been dominated by data from the labor market. The releases, including the aforementioned jobless data, have been somewhat positive. On Tuesday, we learned in the Job Openings and Labor Turnover Survey (JOLTS) that the number of positions available rose, to 8.04 million, last month, topping the consensus expectations, but the report also showed fewer people are leaving their current jobs. Meanwhile, payroll processor Automatic Data Processing (ADP) reported that private-sector jobs increased by a better-than-forecasted 143,000 in September, suggesting that the labor market may be holding up better than economists would have expected, given the restrictive monetary policies in place since early 2022.
All of this employment data come ahead of the September employment and unemployment report from the Labor Department, which is scheduled for release at 8:30 A.M. (EDT) tomorrow morning and may play a big role in how aggressive the Federal Reserve reduces interest rates before year’s end. Right now, the market is pricing in 75 basis points of cuts in total over the remaining two Federal Open Market Committee (FOMC) meetings of 2024. The positive job creation figures, though, may have contributed some to the pickup in market volatility this week, as it may result in a quarter-point interest-rate cut instead of a half-point reduction at the next (November) FOMC meeting.
There was some news from the corporate world since the close of trading yesterday. The headline report came from Tesla (TSLA), with the electric vehicle (EV) maker missing estimates on third-quarter deliveries. Specifically, Tesla’s deliveries totaled 462,890 in the latest three-month period, falling short of the consensus forecast of nearly 470,000. Tesla shares, which rose sharply during the third quarter, but were weaker during yesterday’s session ahead of the delivery results, are trading modestly lower in pre-market action. Likewise, shares of Levi Strauss (LEVI) are looking at a weaker opening after the apparel company reported mixed quarterly results, which included an earnings-per-share beat, but weaker-than-forecasted revenues. The company also reduced its full-year revenue outlook and announced that it is exploring the sale of its struggling Dockers brand business. This morning, the China stimulus-driven trade also is looking like it is fizzling out, as shares of many of the China-based companies are giving back some of their recent huge gains.
Overall, the biggest driver of trading this week, which included a notable selloff on Tuesday, has been the rising turmoil in the Middle East. Equities sold off on news of Iran bombing Israel with missiles, as tensions between the two nations intensify. Israel vowed a swift and pronounced military response against Iran. The fighting in the Middle East raised concerns about the global oil supply chains and pushed the price of crude quotations notably higher. The Middle East conflict, along, with the port strike on the East Coast of the United States, if it is prolonged, could hurt supply chains. These events have the potential to push prices higher again and could derail the steady progress made on inflation over the late spring and early summer months. Economists estimate that a prolonged dock strike, which is entering its third day, could reduce the 2024 gross domestic product (GDP) by as much as a half-point.
These worries have led to a “flight to safety” strategy on Wall Street this week, with investors showing increased interest in more defensive-oriented sectors the last few sessions. In the same vein, the value of the U.S. dollar versus a basket of international currencies strengthened and investors continue to buy gold, both of which are considered defensive-oriented moves when market volatility rises. The CBOE Volatility Index (or VIX), also known as the “fear gauge,” has rose this week, mostly on the aforementioned geopolitical concerns. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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