Before The Bell
Stock futures are pointing higher, following Friday’s strong government employment report. The Labor Department data showed that 531,000 jobs were added in October, the unemployment rate fell to 4.6%, and wages rose. September figures were also revised upward.
The news will probably not affect Federal Reserve policy in the near term. The Fed this week laid out plans to begin to winding down its sizable securities purchase program by $15 billion a month, from the $120 billion per month in effect for more than a year.
At that pace, the initiative would conclude at midyear 2022, at which time interest rates may start to rise. But the central bank made clear it is not tied to a predetermined plan; instead it will gauge as time goes by what policies need to be enacted.
Inflation will be a key issue for the central bank. Wages and prices are clearly on the rise, and part of the reason is the disruption caused by the pandemic. There is a risk that higher-than-tolerable inflation will persist longer than expected, and cause the Federal Reserve to hike rates more aggressively than previously figured.
That chain of events, should it develop, might well pressure stocks, since higher interest rates tamp down the growth that the stock market prizes.
Higher oil prices are contributing to inflation. The OPEC+ group of producing nations stuck to its plan to pump a modest 400,000 more barrels a day next month, dashing hopes for additional oil output.
Meanwhile, Thursday’s price action in the major stock indexes was mixed. The NASDAQ led the way with a 129 point gain and the S&P 500 added 19 points, but the Dow Jones Industrial Average eased 33 points. The NASDAQ and the S&P closed at record highs and the Dow, while lower, is not far off its peak.
Among the markets various sectors, tech and consumer discretionary stocks fared the best, while the financial and real estate sectors lagged the most. Financial stocks eased a bit a bond yields backed off. The yield on the benchmark 10-year Treasury note fell to 1.52% from 1.57%. The Bank of England surprisingly held rates steady when an increase seemed in the cards. That may have influenced domestic yields. Banks tend to benefit from higher rates as loan yields rise.
Overall, investors remain optimistic about earnings and the economy. In the coming weeks, the focus on business news is likely to increase, given that the Federal Reserve has laid out its plans and earnings season is winding down. A few reports on inflation due out next week are sure to be closely watched.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
