Stock futures point to a mixed open to today’s trading. Early this morning, the Bureau of Economic Analysis (BEA) released important economic data for the month of November. The headline Personal Consumption Expenditures (PCE) price index posted a month-to-month decline of 0.1%, compared to a flat reading for October. This index was up 2.6%, year on year, versus a revised 2.9% gain in the prior month. The core PCE, which strips out volatile food and energy prices and is a preferred inflation measure for the Federal Reserve, showed slow momentum, with a monthly increase of 0.1%, matching the previous revised advance. Year over year, the core PCE was up 3.2%, easing from the recalculated October rate of 3.4%. The slackening of inflation should be a positive for share prices through the end of trading today.
As the latest PCE data was unveiled, the BEA provided additional economic news for last month. Preliminary personal income and spending rose 0.4% and 0.2%, faster than the rates of 0.2% and 0.1% (revised), respectively, in October. Despite the sustained negative of elevated goods and services prices, the jobs market is proving resilient and consumers are still spending, albeit conservatively. Demand for services remains healthier than that for goods, but the latter is perking up. We note the U.S. Census Bureau reported that durable goods orders improved an impressive 5.4% in November, after a decline of similar magnitude in the prior month. Excluding transportation data, orders rose 0.5%, versus a slight 0.1% falloff previously.
Shortly, the Census Bureau will provide information on new home sales for November. Such sales are expected to have increased 1.3%, to 688,000. A modest monthly gain of 0.8% in existing home sales was reported this past Wednesday. Conventional 30-year mortgage rates are continuing to ease toward the 6.5% mark, which has prompted more prospective home buyers to move back into the market. Too, within the hours, the University of Michigan will report its final consumer sentiment figure for December. The initial sentiment read was 69.4, up strongly from 61.3 in November. Slowing inflation, the prospect of lower borrowing costs, improved wages, richer home valuations, and higher stock prices may well continue to lift sentiment.
During the coming Christmas week, investors will parse the latest information on home prices, via the S&P Case-Shiller 20-city index; pending home sales from the National Association of Realtors; consumer confidence, provided by the Conference Board; initial jobless claims for the week ended December 23rd, as measured by the U.S. Department of Labor; as well as advance wholesale and retail inventories from the Census Bureau. We are not expecting any big surprises. The new data should support the premise that the economy is holding up well and may avoid a recession in the coming year.
Stocks look to end this week in positive territory, extending advances made since late October. Through Thursday’s close, the tech-heavy NASDAQ, broader Standard & Poor’s 500, and the blue-chip Dow Jones Industrial Average had gained about 1.4%, 0.6%, and 0.4%, respectively. In recent days, the NASDAQ has reasserted its leadership, but we are still seeing a broadening of good performance in the equities market, with cyclical and value issues garnering increased investor interest. Lately, trading in large capitalization financials, healthcare, and utility stocks has expanded. Too, mid- and small cap stocks have gained in popularity. Such issues may take the lead from the top tech issues in 2024, considering their attractive price-entry points.
Some caution is advised, given that many on Wall Street appear optimistic that the Fed will cut the federal funds rate, now 5.25%-5.50%, in five or six one-quarter-point increments through much of next year. Central bank officials seem to believe that only three quarter-point cuts would be appropriate. Disappointment on the Street could heighten share-price volatility. – David M. Reimer
At the time of this article’s writing, the author did not hold any positions in the companies mentioned.
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