A huge stretch of economic news kicks off later this morning, with the release of the October reading on manufacturing activity from the Institute for Supply Management, a trade group, and the latest Job Openings and Labor Turnover Survey (JOLTS) at 10:00 A.M. (EDT). The latter report will be closely monitored by the Federal Reserve, which commences its two-day monetary policy meeting today, for signs about inflation. It stands to reason that if fewer job openings are available, the competition for workers will not be as intense and that scenario may put some downward pressure on wages, which have been a contributor to the stubbornly high inflation.
The JOLTS report comes ahead of tomorrow’s October data on private payroll creation from Automatic Data Processing (ADP) and the official October employment and unemployment report from the government on Friday. The jobs data, along with the Fed’s monetary policy decision tomorrow afternoon, are likely to drive the direction of trading later this week.
The month of November commences with the major equity averages in rally mode, though yesterday’s session saw the main indexes end the day in negative territory. This was likely the result of modest profit-taking after the recent stock market rally and some portfolio repositioning on the final day of October. The question for investors right now is if the latest recovery in stocks is a bear market rally, which we saw more than once this year, including the July and August buying which were not lasting recoveries, or something more durable.
Our sense is that Federal Reserve Chairman Jerome Powell’s commentary after the Fed statement tomorrow afternoon will play a huge role in what direction trading heads. If he strikes a hawkish tone, the sellers may again dominate the market, but if Mr. Powell says that the Fed will begin to decrease the size of the interest-rate hikes in December and early 2023, that may extend the recent market rally. The equity futures are pointing to a higher start to the trading day stateside, fueled by a drop in the value of the U.S. dollar (which aids export business and has other effects) and a decline in Treasury market yields ahead of the Federal Open Market Committee (FOMC) meeting. It also should be noted that stocks in Asia jumped overnight on unsubstantiated reports that China is making preparations to gradually exit the stringent COVID-19 zero-tolerance policy that’s been a big headwind for investors.
Then there is the continued flow of corporate earnings news. For the most part, the quarterly results have surprised to the upside with more than 50% of the S&P 500 companies having reported. The better-than-feared earnings results have powered the recent market rally, which saw the Dow Jones Industrial Average (DJIA) recover more than 14% in October, its best month since January 1976. The recent leadership upward has come from the value-oriented names. This morning, the stock of Pfizer (PFE) is up in pre-market action after the pharmaceutical giant surpassed revenue and earnings-per-share expectations. Staying in the drug sector, shares of Abiomed (ABMD) are skyrocketing after the medical device maker disclosed that it has agreed to be acquired by industry giant Johnson & Johnson (JNJ) for $16.6 billion (or $380 per share).
The technology sector, which for many years provided the leadership for the market during earnings season, has been a relative laggard of late, with many of the mega-cap tech companies posting weak quarterly results and/or issuing dour near-term expectations. (The NASDAQ Composite rose 3.9% in October, compared to the aforementioned outsized gain for the DJIA.) Shares of Amazon.com (AMZN), Alphabet (GOOG), Microsoft (MSFT), Intel (INTC), and Meta Platforms (META) have fallen sharply after reporting their latest quarterly results. The overall weak sector showing, along with the continued rise in interest rates, is hurting the higher-growth technology companies. However, this morning, the stock of Uber Technologies (UBER) is bucking the downward trend for technology and looking at a nicely higher opening after the ride-sharing and food delivery company reported its latest quarterly results and said that it expects to deliver a strong fourth-quarter performance. – 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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