Stock traders appear set to produce a down open to today’s market. Before the commencement of trading, Wall Street received key employment numbers for the month of September. Job additions ramped up by 336,000, nearly double economists’ outlook for 170,000 new positions and substantially above the previous month’s tally of 187,000. The unemployment rate held steady at 3.8%, a bit higher than what was expected. Labor participation stayed at 62.8%. Generally, the jobs market remains favorable for workers. We note, too, that last month’s hourly wages advanced 0.2%, in line with the growth rate recorded in August. On a year-to-year basis, worker pay increased 4.2%, slightly below the prior-month pace of 4.3%. Consumers are dealing with still-significant inflation, but elevated compensation is helping to cushion the rising stress.
For the rest of this trading day, investors will parse the thoughts of Federal Reserve officials Lorie Logan, Christopher Waller, and Philip Jefferson on the macroeconomy and monetary policy. The central bank next meets from October 31st to November 1st. Officials will hold their final formal 2023 meeting on December 12-13. Expectations on the Street are that one additional hike of 25 basis points in the federal funds rate, to 5.50%-5.75%, is possible. If the Fed does decide to raise short-term rates, it seems that such an action would more likely occur in December, allowing officials to gather additional economic data before acting. Importantly, economic data would include corporations’ third-quarter earnings releases.
Analysts’ corporate earnings estimates appear fairly optimistic for both the September and December quarters. We caution, however, that companies are seeing less product and service pricing power, increased commodities cost and wage pressures, and higher borrowing expenses. Even modest earnings misses could result in outsized share-price moves to the downside. Earnings beats may not produce many benefits. That said, stock sales in September and the early part of this month have brought equities to more reasonable valuations, following strong gains through the first seven months of 2023. A consensus appears to be forming on Wall Street that stocks will be flat to up for the remainder of this year.
Recently stressing stock prices have been the heightened yields of alternative Treasury and corporate bond investments, as well as those of money-market accounts. Dysfunction in the U.S. Congress, prompting worries about the government budget approval process, higher energy prices, pressuring consumer finances, and a strong U.S. dollar, hurting the competitiveness of domestic-based multinationals, probably haven’t helped either.
A number of market pundits are beginning to wonder whether stocks and bonds have been “oversold.” The coming earnings season should provide greater clarity. The stocks of tech industry leaders have taken it on the chin since scoring late-July highs, but have displayed a modicum of stability recently. These issues, given the companies’ solid cash-generating capabilities, could prove to be good defensive holdings in individual portfolios over the near term. Lately, more analysts on the Street seem to believe that the broader stock market still lacks sufficient breadth for outsized gains in the major indexes to year end. A substantial reduction in bond yields, if that occurs, likely would change such sentiment. All in all, there’s a fair measure of uncertainty, thus, we advise maintaining stock portfolio diversification, while keeping some cash on the side to put to work in the future (i.e., taking advantage of any share-price bargains). – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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