Shortly before the opening bell, stock market futures were pointing to a strong positive opening to today’s trading. Wall Street was focused on the latest inflation data from the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) posted a 0.4% increase for the month of October, versus economists’ consensus expectation of 0.6% and the prior month’s expansion of 0.4%. Core CPI, which excludes volatile energy and food prices, advanced 0.3%, compared to the experts’ outlook for a 0.5% uptick and September’s 0.6% rise. On a 12-month basis, October CPI and Core CPI, were 7.7% and 6.3% higher, respectively. Economists had estimated growth of 7.9% in the CPI and 6.5% in the core figure. These latest readings were down from the previous month, also a good sign for stocks.
The Labor Department also released its tallies for initial jobless claims, continuing jobless claims, and average hourly earnings. Initial claims for the first week of November came in at 225,000, modestly higher than the week before (218,000). Continuing claims, through October 29th, were 1.49 million, matching what was reported previously. Average hourly earnings in October rose 0.4%, above the 0.3% gain for September.
Likely contributing some additional impetus to today’s trading activity will be scheduled comments from the Federal Reserve’s regional presidents based in Philadelphia, Dallas, Cleveland, Kansas City, and New York.
The latest inflation and job data still support Wall Street analysts’ and pundits’ anticipation that the Fed will continue to raise short-term interest rates at its upcoming meeting in mid-December to fight inflationary pressures. What is unknown is how much the central bank will hike rates. A majority of market watchers seem to expect either a one-half or three-quarters of a percentage point move. Ultimately, before mid-2023, the Fed could well raise the Federal Funds borrowing range to the 5% level. A reversal of policy, that is, rate cuts, does not seem to be in the cards anytime soon, unless the domestic economy visibly begins to deteriorate. However, even a “pause” (not raising rates at a scheduled Fed meeting) could be a positive for stocks.
Share prices might well remain under stress, or at least continue to display significant volatility, through the end of this year and into early 2023. Lately, adding to investors’ jitters have been Facebook parent Meta Platforms’ (META) announcement it will cut staff by 11,000 positions, as operating results are coming in softer than expected; a disappointing fourth-quarter (ended October 1st) revenue and earnings performance from media-and-entertainment giant The Walt Disney Co. (DIS); and worsening news on the liquidity situation at Bahamian cryptocurrency exchange FTX, exacerbated by peer Binance stepping away from a potential acquisition deal.
At this juncture, value stocks appear to be most popular. In recent weeks, the blue-chip Dow Jones Industrial Average has outpaced both the broader Standard & Poor’s 500 and the tech-heavy NASDAQ. Investors’ interest in the stable stocks of well-established companies with solid revenue, earnings, and cash flow growth has advanced, especially in the financial, health care, and industrial sectors. They are now more willing to pay a premium for such equities, given ongoing market uncertainty. – 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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