The U.S. stock market put in a strong session yesterday, but it remains to be seen how the major averages will fare today. Of note, the equity futures have been under pressure this morning, which might suggest some softness at the start of the session.
As always, traders will be looking to the most-recent economic reports and corporate earnings releases for direction. In economic news, this morning the third estimate for third-quarter GDP (Gross Domestic Product) was released. The report showed the economy expanded at an annualized rate of 3.2% in the quarter, which was slightly ahead of analyst expectations and impressive given the challenging environment. Tomorrow, the PCE (Personal Consumption Expenditures) Price Index for November will be published. This report is closely followed by the Federal Reserve and will probably confirm that inflation still sits well above the central bank’s 2% target rate. Notably, it has been quite hard to control inflation, which reflects various systemic issues (dislocations in the energy markets, supply-chain problems, labor shortages, etc.). As a result, many analysts wonder if the Federal Reserve’s tools can adequately address the situation.
In corporate news, Micron Technology (MU) posted softer-than-anticipated results yesterday afternoon, and that stock has been displaying some weakness in pre-market trading. This morning, Paychex (PAYX), a provider of business software, delivered a solid report, and investors seem pleased with the news. Looking ahead, the fourth quarter of 2022 will soon draw to a close. Numerous corporations will then be releasing their final reports for the year, and providing guidance for 2023. Lately, many analysts have lowered their near-term expectations and have expressed concerns that a recession will weigh on profits in 2023.
From a technical perspective, the stock market rally that commenced in mid-October seems to have stalled. In early December, the S&P 500 Index was unable to advance beyond its 200-day moving average, situated near the 4,020 level, and has since moved lower. It remains to be seen if stocks can regain their stride, or if further weakness will unfold in the days ahead. From a sector view, the large technology issues, many of which are heavily weighted in the major averages, have not performed well. The healthcare and basic materials stocks have held up better, but it is not clear if these issues can provide the leadership needed to support a new bull market. — Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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