Stocks appear set to post a positive open to today’s trading. Early this morning, the U.S. Department of Labor announced that initial jobless claims tallied a modest 209,000 for the week ended November 18th, versus economists’ consensus estimate of 227,000, and the revised prior-week total of 233,000. Notwithstanding the lower claims, higher interest rates are having an impact on consumer and business spending. With pricing power beginning to wane, companies are looking to trim costs, and paring staff is a solution on the table. Jobless claims may trend upward in the coming quarters.
Additionally, prior to today’s commencement of trading, the U.S. Census Bureau reported, on a preliminary basis, that durable goods orders fell 5.4% last month, following a 4.6% gain in September. Adjusting for transportation goods (including automobiles), orders were flat, compared to the adjusted previous-month reading of 0.2%. Over the past few months, this economic measure has proven quite volatile. In the near term, sales of large ticket items (e.g., autos, washers, dryers) might well soften, as consumers become more cautious about taking on new debt. Notably, concerned that a recession may soon take hold, workers are holding on to existing jobs. Shortly, the University of Michigan will provide its final reading on November consumer sentiment. It’s expected to fall to 60.6 from the October level of 63.8. Elevated prices of goods and services and higher borrowing rates are weighing on people’s view of their financial situations.
After the Thanksgiving holiday, that is, on Friday morning, Standard & Poor’s will unveil its “flash” November Purchasing Managers Index figures for the services and manufacturing sectors. Economists anticipate both sectors modestly expanded. Lending support to manufacturing is in-effect government legislation supporting the “on-shoring” of production to U.S. locales, especially that related to battery and semiconductor device supplies. The services sector is still benefitting from consumers’ shift from goods purchases to “experience” spending (sporting events, concerts) in the wake of the coronavirus pandemic. Recent retail sales results have been soft, and merchandisers are predicting a tepid holiday season, overall.
Stocks began this week on a solid note, but took a bit of a breather yesterday. Retail results from Lowe’s (LOW), Best Buy (BBY), American Eagle Outfitters (AEO), and Kohl’s (KSS) put a brake on the positive recent momentum, as did uncertainty over NVIDIA’s (NVDA) scheduled after-market earnings release. The generative artificial intelligence chip developer turned in favorable numbers, and its management was generally optimistic about future business. Concerns about China, however, pulled the share price of the $1 trillion-plus market cap company down some in after-hours trading. For all of this holiday-shortened week, we would not be surprised to see a flat-to-up performance for the major market indexes.
Next week, the Bureau of Economic Analysis will give an update on the Personal Consumption Expenditures price index for the month of October. Wall Street is hoping for no, or very slow, inflation. That could support higher share prices to yearend. Also, should the Federal Reserve decide at its December 12-13 meeting to again hold short-term interest rates steady, at 5.25%-5.50%, stocks could benefit.
While sentiment on the Street is currently positive, a major political or economic event (e.g., expansion of the Israel-Hamas conflict or significant liquidity stress in an area of the financial market), though we don’t foresee anything on the horizon, could throw the stock market a setback. We advise an emphasis on portfolio diversification. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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