Futures markets suggest a mixed open to today’s stock trading. No new economic data were released this morning, prior to the bell. Even so, as today unfolds, investors will receive new information on manufacturing, construction spending, and auto sales. Economists expect slight month-to-month improvements in November manufacturing to be shown by Standard & Poor’s Purchasing Managers Index and the Institute for Supply Management’s measure. Still, the sector probably contracted modestly in the month. Construction in October is expected to have lost some positive momentum. Last month’s annualized auto sales are anticipated to tally 15.5 million, up from just above 14 million one year ago. Overall, the economy is holding up reasonably well, though elevated interest rates are a limiting factor.
For all of this week, the blue-chip Dow Jones Industrial Average (DJIA) looks to achieve a respectable 1%-2% advance, while the broader Standard & Poor’s 500 (S&P 500) and the tech-heavy NASDAQ turn in essentially flat performances. That said, the major indexes reported their best monthly record since July of 2022, with the DJIA and S&P 500 both improving close to 9% and the NASDAQ increasing almost 11% in value during November.
Influencing share prices this week, to varying degrees, were softer new home sales (October), resilient home price growth (September), improved consumer confidence (November), a revised upward third-quarter Gross Domestic Product growth figure, a lower-than-expected increase in jobless claims (week ended November 25th), weakness in pending home sales (October) and, as predicted, slower personal income and spending growth (October), as well as tamer inflation (October), according to the Personal Consumption Expenditures price index.
Today, Federal Reserve Chairman Jerome Powell will speak from Atlanta on the health of the economy and central bank policy. Though he likely will maintain that future Fed policy is dependent on incoming economic data, without indicating whether more hikes or cuts in short-term interest rates, currently 5.25%-5.50%, are forthcoming, Wall Street appears confident it knows what’s in store for investors. The next Federal Open Market Committee meeting is scheduled for December 12-13. Stock market pundits generally expect no action this month and reductions in the federal funds rate to begin this coming spring. Some are anticipating four to five one-quarter-point cuts, which seems rather optimistic. A few Fed officials have suggested one or two cuts of such magnitude, if at all, might occur, but no sooner than the back half of 2024.
Barring any significant economic or political events, we would not be surprised to see the domestic market indexes inch higher to the end of this year. Next year’s outlook is more challenging to gauge. Third-quarter corporate earnings reports have indicated slowing revenue growth, given pressure on consumer and business spending caused by elevated prices and borrowing rates. Notably, despite the top-line stress, many companies have been able to advance share earnings at a healthy clip. Many are placing a greater emphasis on cost control, as opposed to growth, in order to protect profit margins.
There’s a good chance that the Fed can execute a soft landing next year, that is, to avoid causing a recession. If this holds true, companies can probably maintain decent profitable growth, auguring well for stocks. Still, we think that share-price gains may not be as great as what probably will be posted for this year. Through the end of November, the DJIA, S&P 500, and the NASDAQ were up about 8.5%, 19%, and 36%, respectively. - David Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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