This morning, we received two important reports on the economy, both of which came from the Department of Labor. At 8:30 A.M. (EST), we learned that the Producer Price Index (PPI) rose by 0.2% on a month-to-month basis and was up 2.4% over the one-year period. The core PPI, which excludes the more-volatile food and energy components, increased 0.3% and 3.1%, respectively. The PPI data were higher than expected and showed some signs of a modest reacceleration in inflation. The PPI data, along with yesterday’s companion report on consumer prices, though, likely does not change the narrative that the Federal Reserve will again reduce the federal funds rate, currently in the range of 4.50% to 4.75%, by a quarter point at the final Federal Open Market Committee (FOMC) of 2024, which commences on December 17th. The odds of a December rate cut in the futures market are still above 75% following this week’s inflation data.
We also learned from the Labor Department that initial jobless claims for the week ending November 9th totaled 217,000, which was down from the prior week’s revised total of 221,000. This low level still suggests some tightness in the labor market, despite a disappointing estimated October jobs creation tally of 12,000. That figure, though, was likely hurt by two major hurricanes this fall and a few notable workers’ strikes. This morning, we will hear from three senior Federal Reserve officials, including Chairman Jerome Powell. The equity futures, which were higher heading into the economic releases, are now presaging a mixed opening when trading kicks off stateside. It also is worth noting that the U.S. dollar again traded higher yesterday, to near a one-year high, on expectations that the incoming Trump Administration’s proposed policies may fuel economic growth, but also result in a reacceleration in inflationary pressures.
The stock market, which rose sharply following last week’s election results only to ease a bit earlier this week, delivered a mixed performance yesterday following the release of the much-anticipated Consumer Price Index (CPI) data. The Dow-30 and S&P 500 Index rose modestly, while the tech-heavy NASDAQ Composite and more so the small-cap Russell 2000 again gave back some of the recent gains. Although the headline October 12-month CPI figure did come in a bit stronger than the prior month (rising 2.6% versus 2.4% in September), the overall report, which included the core CPI matching the consensus forecast, did not, as noted above, change the narrative that the Fed will again cut the federal funds rate next month. We will also get another round of inflation data (November reports) that Wall Street consensus feels will likely show an easing in price growth before next months’ FOMC meeting. Still, Treasury yields have risen sharply over the last several weeks, even as the Fed continues to loosen the monetary reins and brings interest rates closer to a more-neutral level.
Meanwhile, third-quarter earnings season, which is winding down, was again supportive for equities, with profit growth for S&P 500 companies averaging around 5%. However, before the books are closed, we will get a number of reports from the U.S. retailing sector. These quarterly results will be closely monitored for clues about the health of the consumer sector, especially with the all-important holiday shopping season for retailers kicking off in two weeks on Black Friday. The consumer sector has proven resilient this year.
The headline quarterly report this morning came from Dow- 30 component Walt Disney (DIS), which posted adjusted fiscal fourth-quarter (ended September 30th) earnings per share of $1.14, on better-than-expected revenues of $22.57 billion. The top-line gain was driven by the Experiences division and the streaming unit. In addition to beating expectations, the entertainment giant raised its revenue prognostications for fiscal 2025. It also is worth noting that today’s guidance was more forward-looking than during past quarters, which may speak to management’s growing confidence in the company’s near-term performance. Not surprisingly, Disney stock is looking at a nicely higher opening when trading kicks off stateside.
Since the results of the U.S. elections were revealed, the stock market has moved significantly higher, with broad-based advances, led by the small-cap stocks. The gains have been fueled by the hopes that President-elect Trump’s more pro-business policies, including maintaining or lowering the corporate tax rate and reducing regulations, will have a positive impact on U.S. corporations and small businesses. In particular, the banking stocks have jumped since Election Day, with many market pundits thinking that less regulations in the sector will led to increased M&A activity and deal making. Those events should give a boost to profits at the major investment banks. - William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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