The stock futures market is pointing to a positive open to today’s trading. Before the bell, investors received October data on U.S. employment. Nonfarm payrolls rose a somewhat more modest 150,000, versus the economists’ consensus estimate of 180,000 and the previous-month’s strong read of 297,000 (revised). The unemployment rate came in at 3.9%, slightly above the experts’ expectation and the prior-month showing (3.8%). U.S. hourly wages ticked up 0.2%, month over month, compared to the consensus estimate of 0.3% and the previous improvement, also 0.3% (revised). On a year-over-year basis, hourly wages gained 4.1%, compared to an anticipated 4.0% and the prior-month reading of 4.2%. Additionally, the labor participation rate narrowed a bit to 62.7% from 62.8% in September. In sum, the domestic labor market is still proving resilient.
Later this morning, Standard & Poor’s will release its Purchasing Managers Index gauge on the services sector for last month. It’s expected to hew close to the prior reading of 50.9, indicating sustained expansion. The Institute for Supply Management also will provide its measure of the same sector, which is anticipated to show continued growth, as well. Too, over the course of today, Federal Reserve Presidents Tom Barkin, Neel Kashkari, and Raphael Bostic, along with Fed Vice Chair for Supervision Michael Barr, will, separately, give their thoughts on the economy and central bank policy.
On Wednesday of this week, Fed Chairman Jerome Powell announced the Federal Open Market Committee’s decision to keep federal funds rates in the range of 5.25%-5.50%. The Fed appears close to the end of its aggressive inflation-fighting strategy that began in March of 2022, when short-term rates were near zero percent. Mr. Powell did leave the door open for another rate hike, possibly on the order of 25 basis points, late this year or early next, depending on the strength of incoming economic and inflation data. Third-quarter corporate earnings, so far, have been generally favorable.
There is evidence that elevated short-term interest rates are making consumers and commercial businesses more cautious about their spending. Too, higher bank lending rates (and standards) have had an impact on their budget planning. Economic activity could well soften in the final quarter of this year. Also, many economists are expecting subdued domestic growth in 2024. We would not be surprised to see companies redouble their efficiency efforts to maintain good profitability.
Wall Street appears optimistic that the Fed is at the end of its current interest-rate hiking cycle. Stocks, on the whole, appear poised for gains in the mid-single-digits this week. Though it’s not certain, rates paid on Treasury and high-quality corporate bonds may have peaked. The elevated rates have hurt stock valuations since the end of July. We’re cautiously optimistic that share prices will trend positive to year end. On balance, it’s probably best that investors hold a diverse mix of conservative bonds, interest-bearing cash deposits, and top-quality equities in their portfolios, at this juncture. – 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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