Stock futures are in negative territory prior to this day’s trading activity. Early this morning, the U.S. Bureau of Labor Statistics reported jobs data for the month of November. Employment additions totaled 199,000, versus economists’ new jobs estimate of 190,000 and the October figure of 150,000. The unemployment rate came in at 3.7%, compared to an expected steady monthly level of 3.9%. Hourly wages advanced 0.4%, month to month, and 4.0%, year over year; the anticipated monthly and yearly rates were 0.3% and 4.0%, respectively. For October, wages rose 0.2%, monthly, and 4.0% (revised), yearly. The labor participation rate ticked slightly higher (by one-tenth of a point) to 62.8%, still at a modest level, relative to what was reported (67.3) around the turn of the millennium. Generally, the domestic jobs situation remains healthy, despite declining job openings and lower employee turnover. More-modest wage growth is supportive of a weaker inflation trend, but the market may not be happy about the more robust than expected expansion in total jobs.
Shortly, the University of Michigan will release its gauge of consumer sentiment for the current month. This gauge is expected to rise to 62.4 from 61.3 in November. Such a reading, showing a further, albeit halting, recovery, would be well below the 95-100+ range recorded from 2017 to early 2020. Inflation and elevated borrowing rates are making consumers say they will be more circumspect about spending and taking on new debt. In light of this fact, companies are also being cautious about issuing stocks or bonds and investing in the expansion of their operations. Service providers have been in a better position, relative to manufacturers of goods, as demand, in the wake of COVID-19, has benefited from people wanting to enjoy more experiences.
The Federal Reserve is scheduled to meet next week, more specifically, December 12-13. Chairman Jerome Powell and other Fed officials have left open the option of raising short-term interest rates from the current level of 5.25%-5.50%. Before this meeting’s conclusion, the central bank will receive inflation data for the month of November in the forms of the Consumer Price Index and the Producer Price Index. Wall Street is hopeful that these indexes will depict declines in inflation. In recent times, the Street has been optimistic that inflation will recede and a recession will be avoided, lending credence to beliefs that the Fed will start to cut the federal funds rate as early as this spring. A few Fed officials have said cuts, if any, may not come until the second half of 2024 and could be limited to two one-quarter-point moves.
For all of this week, the major market indexes look to turn in a flat performance, with only the tech-heavy NASDAQ likely posting a slight gain, supported by favorable generative Artificial Intelligence (AI) development news from Advanced Micro Devices (AMD) and Google parent Alphabet (GOOG). December is off to a tepid start, following a strong stock performance in November, when the indexes closed near their 52-week highs. Many pundits on Wall Street view the latest softness, after a nice run-up, as healthy for the long-term market trend. To the end of 2023, given still-decent investor sentiment, we would not be surprised to see share prices inch higher.
Of course, it’s more challenging to predict what’s in store for the stock market in 2024. It is probably safe to say that the major market indexes will achieve further gains, though possibly short of this year’s strong performance, assuming milder inflation, a resilient consumer, and no recession. Year to date, the blue-chip Dow, broader Standard & Poor’s 500, and the NASDAQ have improved approximately 9%, 19%, and 37%, respectively. Lately, there’s been evidence that market gains are extending beyond the tech industry leaders. Indeed, cyclical and value stocks could gather share-price momentum in 2024. That said, given all the excitement surrounding the potential productivity benefits associated with AI, we would not write off the possibility of a solid tech-sector showing. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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