The major domestic stock market indexes look to post a positive open to today’s trading. Early this morning, surprising data was released on the U.S. employment sector. For the month of October, a very modest 12,000 jobs were added, versus economists’ expectation of 110,000 and the robust prior-month figure of 223,000 (revised). Hurricanes, union work actions, and higher immigration surely affected the data. The unemployment rate came in at 4.1%, as expected and on a par with the previous showing. Hourly wages rose a solid 0.4% in October, one-tenth of a point better than both estimates and the revised September pace. On a year-to-year basis, pay maintained a steady growth rate of 3.9%. On balance, the jobs market remains reasonably healthy, a situation that the Federal Reserve would like to sustain.
Shortly after today’s opening bell, investors will see Standard & Poor’s final October reading of its manufacturing purchasing managers index (PMI). That PMI is anticipated to hew close to 47.9, indicating a contraction of activity. It has been quite volatile this year, shifting between measures implying growth (above 50) and measures showing contraction (below 50). Later this morning, the Institute for Supply Management (ISM) will present its own reading on manufacturing health. ISM’s reading is expected to mark an improvement in the sector, though it will probably depict further consolidation. Conversely, we note that the services sector has been in expansion mode for much of this year. Auto sales numbers for October and construction spending for September will be released today, as well. We would not be surprised to see these data points come in at healthy levels.
To recap, other economic data highlights of this week included a rise in retail inventories, stronger-than-expected consumer confidence, a solid employment report from Automatic Data Processing, a very respectable third-quarter gross domestic product gain, modest initial jobless claims, higher pending home sales, and inflation, as measured by the personal consumption expenditures price index, that is generally running on a par with economists’ estimates. These data were influential to the stock market indexes. In the week, the tech-heavy NASDAQ reached a new high, but it did join the broader Standard & Poor’s 500 and the blue-chip Dow Jones Industrial Average yesterday in backing off their own records. Today’s futures action indicates a bounce back from yesterday, perhaps because the weak employment report may encourage the Fed to continue a steady course of reductions in interest rates.
September-quarter corporate news and earnings reports also played a meaningful role in moving share prices this week. Weighing on the indexes were Boeing’s (BA) announcement of a hefty $21 billion equity offering, Ford’s (F) disappointing net-profit guidance, Advanced Micro Device’s (AMD) unfavorable revenue outlook, and investors’ concern over heavy spending on artificial intelligence solutions development by Meta Platforms (META) and Microsoft (MSFT). Lending some support to stock valuations were Alphabet (GOOG), International Paper (IP), ConocoPhillips (COP), and Visa (V), thanks to good operating results. To a lesser extent, ON Semiconductor (ON), Reddit (RDDT), and Snap (SNAP), with their solid financial showings, had a positive impact on the markets, as well. Amazon.com (AMZN), also turning in favorable results, gave a boost to aftermarket trading values Thursday night.
The current earnings season, though not exceptional, is turning out to be a decent one. Fortunately, indications are that domestic growth, the employment sector, and inflation are all trending in a favorable manner. It seems as if the Federal Reserve is close to attaining a soft landing for the economy, avoiding a recession. At this juncture, the central bank is likely to continue to reduce short-term interest rates, most likely by one-quarter percentage point, both this month and in December. The federal funds rate is currently 4.75%-5.0%.
The market indexes will be hard pressed to score gains this week. Given the recent volatility in share prices and the uncertainty surrounding next week’s Presidential election, as well as geopolitics, we advise investors to maintain a significant weighting of large-cap equities of industry leaders in their portfolios. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
