Stocks appear on the verge of a mixed open to today’s trading. Early this morning, the Bureau of Labor Statistics released import price data for the month of February. The Bureau’s index showed a 0.3% month-to-month advance, matching economists’ estimate and below the previous rate of 0.8%. Excluding volatile fuel prices, the index rose 0.2%, compared to the January increase of 0.7%. The new data confirms that further reductions in inflation, though more challenging, should continue. Additionally, the Federal Reserve Bank of New York announced that its manufacturing survey for the Empire State displayed sharper weakness this month.
As the time for the opening bell drew closer, the Federal Reserve Board was set to report figures on industrial production and capacity utilization. Both likely will display little change from recent unprepossessing levels. After the bell, the University of Michigan will make public its preliminary consumer sentiment survey for this month. The survey is expected to show more improvement.
Stocks are trying to hold on to gains for the current week. Until Wednesday afternoon, the major market indexes were visibly trending positive. That was despite somewhat disappointing Consumer Price Index (CPI) data for the month of February. Wall Street and economists continued to believe that the new data would not dissuade the Federal Reserve from cutting short-term interest rates by about 75 basis points, from the 5.25%-5.50% range, during the second half of 2024. In late-day trading on Wednesday, investors’ jitters over the coming Producer Price Index (PPI) measures on Thursday became apparent.
The PPI numbers, like those of the CPI, were higher than anticipated. As investors pondered the updated inflation data’s potential impact on central bank policy, stocks traded slightly lower on Thursday. Though talk on the Street about the Fed doing fewer than three one-quarter-point reductions to the federal funds rate, or none at all, has emerged, we are not convinced that recent official guidance will be altered. The economy is not overheating, unemployment is at a low level, people are changing jobs at a slower rate, wages are rising only moderately, and consumer spending, though still healthy, is not excessive. Fed officials have been cautioning that further progress on the inflation front will not come easy.
Next week, the Federal Open Market Committee will meet and decide on any rate-policy action, if warranted. Data on the jobs, housing, manufacturing, and services sectors will be rolling in. The general consensus among Street analysts and economists is that the Fed will hold short-term rates steady. An initial one-quarter-point reduction is widely anticipated to be announced at the June 11-12 meeting. The committee will review economic data trends as the meeting draws nearer.
Year to date, all three leading market indexes are in positive territory. More specifically, the broader Standard & Poor’s 500 (S&P 500) index, the tech-heavy NASDAQ composite, and the Dow Jones Industrial Average are up 8.0%, 7.4%, and 3.2%, respectively. Lately, the S&P 500 and the NASDAQ have been dueling for the market lead, while the Dow has followed behind. This indicates a broadening of market gains. Indeed, small and mid-capitalization stocks are on the rise, and closing in on the S&P 500’s performance. Investors are selectively trimming their big-cap technology holdings, and purchasing other value and cyclical issues in the energy, financial services, industrial, and heath care sectors, which hold comparatively good prospects for long-term appreciation. Portfolio diversification seems an optimal strategy at this time. – David M. Reimer
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
