Stock market futures are pointing to a more or less flat opening today. This morning, the U.S. Census Bureau released preliminary data on durable goods orders for the month of October showing a 1.0% increase from the prior month. That was a strong gain over the revised September advance of 0.3%. At the same time, the Commerce Department reported that core capital equipment (non-defense capital goods, excluding aircraft) orders were up 0.7% in October, on a month-to-month basis, marking an improvement from the previous reading of a 0.8% contraction. Additionally, the U.S. Department of Labor indicated that jobless claims for the week ended November 19th were 240,000, a notable uptick from the prior-week figure of 223,000. Also, the same government agency stated that continuing jobless claims amounted to 1.55 million for the week concluding November 12th, versus 1.50 million the week before.
The new data overall confirm that the domestic economy remains quite healthy, even as inflation continues to run at a fairly high level and the Federal Reserve has raised short-term interest rates at a rapid clip. Consumers still have ample savings, thanks to government stimulus spending during the height of the coronavirus pandemic. Their spending, while shifting more towards services, is still solid with regard to long-lasting products, such as major household appliances and autos. Businesses are keeping their capital spending budgets relatively high as well, given the sustained product and services demand. Despite job cuts at leading technology companies that are in the headlines, unemployment is historically low, with many more positions unfilled than people looking for work.
Later this morning, Standard & Poor’s will provide its November purchasing managers indexes for both domestic manufacturing and services. Expectations are for a flat manufacturing reading, at a neutral level, and a marginal improvement in services activity, but still showing contraction. Too, the University of Michigan will reveal its latest gauge of consumer sentiment; economists are looking for a slight increase from a depressed level. The university will also give the results of its survey on consumers’ five-year inflation expectations. We would not be surprised to see the outlook for annual price expansion to stay consistent at about 3.0%. Furthermore, the nation’s realtors will release new home sales data for October, which may well come in at about 570,000, compared to 603,000 one month earlier. Investors are closely monitoring economic data, and share prices are likely to react to any surprises in the numbers streaming in.
This afternoon, the central bank’s Federal Open Market Committee (FOMC) will make public the minutes from its recent November meeting. The minutes should help investors to get a clearer picture of the Fed’s current interest rate course. In various forums, officials have continued to argue that the Fed has more work to do in lifting the Federal Funds rate range so that inflation may be brought under control. The consensus on Wall Street appears to be that the FOMC will hike rates another 50 basis points at its mid-December meeting. Also, many analysts and economists look for rates to rise to near the 5% mark by early 2023, and then for the central bank to hold rates steady for a while.
In the final months of each year, share prices, more often than not, rise. This is, perhaps, due to improved investor holiday sentiment. Still, the continuation of such a trend this year is not a given in any corner of the equity market. Since the start of October, the blue-chip Dow Jones Industrial average has outpaced both the broader Standard & Poor’s 500 index and the tech-heavy NASDAQ composite by a respectable margin. Investors are currently favoring high-quality stocks in industry-leading companies with reliable revenue, earnings, and cash-flow growth, as we believe our subscribers should do. – 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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