Stock trading looks to open today in a negative manner, based on the futures market. Early this morning, investors received additional data on inflation. Import prices for the month of October gained 0.3%, compared to economists’ consensus estimate for a 0.1% decline and the prior-month reading of minus 0.4%. Excluding volatile fuel prices, the index pace held steady at 0.2%. This follows consumer price index numbers for last month that were in line with Wall Street expectations and a producer price index (PPI), also for October, that was hotter than anticipated.
Though the import price and PPI results, along with a comment this week from Federal Reserve Chairman Jerome Powell, raise concern that the central bank might become more conservative about cutting short-term interest rates, one monthly data point does not make a trend. More information on inflation will come before the Fed’s mid-December rate-policy meeting. To date, we don’t see any major reason why the central bank would not cut the federal funds rate, now 4.50%-4.75%, by another 25 basis points in that meeting.
Also noteworthy, this morning, updated retail sales figures were released. In October, sales advanced 0.4%, better than the experts’ outlook for a 0.3% increase, but slower than the revised 0.8% pace measured in September. Adjusted for auto sales, growth was a more tepid 0.1%, below an estimated 0.3% and the sharply revised upward prior-month reading of 1.0%. The broader economy remains fairly healthy, as Mr. Powell noted, and consumers are a bit more optimistic about their prospects. Low unemployment and higher wages have been supportive. Still, consumers are being selective in their purchases.
As well, we point out that the New York Empire State manufacturing index for the current month showed a strong improvement to the level of 31.2 from an 11.9% contraction in October. Over the past few months, manufacturing data has shown some encouraging signs. Meanwhile, the domestic services sector is expanding at a solid clip.
At the same time of the release of this write-up, news on October industrial production and capacity utilization will be reported, followed, in turn, by the release of September business inventory levels. These data points may have been influenced by recent hurricanes. Concurrently, Fed officials Susan Collins and John Williams will publicly speak on the economy and Fed policy.
Next week, updated and expanded data on employment, housing, consumer sentiment, and the manufacturing and services sectors will be made available. The central bank will closely monitor these and other data for any substantial shifts in recent trends.
The Fed is focused on the current economic situation, notwithstanding Donald Trump’s re-election as President and the policy changes he is proposing. Investors have expressed their optimism about the possibility of less regulation and lower taxes for businesses. Even with the Republicans in control of Congress, however, there may be limits as to how far President Trump can go. Too, Congress is probably cognizant of economists’ concerns that planned import tariffs and immigrant deportations, if fully implemented, could spark renewed inflation. Any policy wins on the new President’s part likely will not be felt by the economy until 2026. Still, the stock market will move quickly on each legislative win or loss.
It’s worth noting that Warren Buffett-managed insurance giant Berkshire Hathaway (BRK.B) has built a sizable cash position in its expansive investment portfolio. Investors may want to adopt a similar strategy for the short term, cashing in on some recent stock gains and having some dry powder available to take advantage of any market dips next year. The major market indexes have taken a bit of a breather this week, but we would not be surprised to see further appreciation to yearend – David M. Reimer
At the time of this article’s writing, the author held positions in none 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.
