Before The Bell
Stock futures are pointing higher ahead of the opening bell, following a week that produced big gains. A reading on core inflation this morning showed that it had risen sharply, but not unexpectedly so. The Federal Reserve’s policy meeting next week is now in focus.
Stocks mostly headed lower on Thursday. The Dow Jones Industrial Average was about flat, but the broad S&P 500 fell 34 points, or 0.7%, and the tech-laden NASDAQ and the small-cap Russell Index fell a relatively steep 1.7% and 2.3%, respectively.
The three-day rally, sparked by reduced fears about the Omicron variant of the coronavirus, ended. Presently, the Omicron variant is seen as highly contagious, but so far not as damaging to individuals’ health as earlier versions of COVID-19, and it remains to be seen to what extent the virus affects the economy. There is still a sense of caution toward shares of companies relying on travel, including airlines, hotels, and cruise lines.
Investors are also awaiting word on the direction of Federal Reserve policy next week. The Fed has shifted its position on inflation, and is showing a greater sense of urgency toward its commitment to keep pricing levels generally stable. That could mean an uptick in interest rates in the first half of 2022. At this point, interest rates do not seem set to take off in a big way, but sustained levels of higher inflation could alter that line of thinking and create some rough patches for stocks.
Thursday’s economic data was supportive, but did little for the market. The Labor Department reported an extremely low number of initial jobless claims for the week ending December 4th, which suggest employers are holding on to their workers in anticipation of steady business.
In addition, the Commerce Department noted that wholesale inventories rose 2.3% in October, more than both the expected 2.2% gain and the 1.4% rise recorded in September. This stocking up may indicate an expectation of brisk sales demand ahead.
On the whole, promising signs for earnings and the economy are being offset to a degree by concerns about higher inflation and interest rates, with the coronavirus still an unknown variable. While stocks are trading at relatively high valuations, they are finding support following selloffs since long-term promise is intact.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
