This morning, stock futures were pointing to a negative opening, potentially giving back some of the gains of the preceding three days. So far this week, the Dow Jones Industrial Average, Standard & Poor’s 500 Index, and the NASDAQ Exchange have each gained in the 4.5%-6.0% range; they do remain, however, firmly in the red, year to date.
At 10:00 AM EST today, the National Association of Realtors will release existing home sales figures for the month of February. Economists are expecting a modest pullback from the very strong growth of 6.7% reported for the first month of this year. House inventories remain tight and pricing continues to increase. However, rising rental rates should keep buyers in the market, even with the cost of mortgages trending upward. At the same time today, the Conference Board will post its Leading Economic Index reading for the recently completed month. That index showed an unexpected slight decline in January. We would not be surprised to see data indicating a further easing of the current domestic expansion. Even if that’s true, notwithstanding softer consumer confidence, spending on goods and services ought to stay relatively healthy, and corporations should benefit at the bottom line in the quarters ahead.
On March 16th, the Federal Reserve provided the markets a bit more clarity with regard to the now commencing interest-rate cycle. The Fed is initially raising short-term rates by one-quarter percentage point and, taking a fairly hawkish position, has stated that it could follow that move with as many as six hikes before the end of 2022. Several market watchers believe there might be a number of larger hikes, on the order of one-half of a percentage point. If the global supply chain makes additional progress towards normality that would probably help the central bank in its effort to tame inflation. Sustained domestic containment of COVID-19 cases would also be a plus. Russia’s ongoing invasion of Ukraine, however, likely will continue to contribute to share-price volatility, at least in the near term. Economic sanctions against Russia are negatively affecting world supplies of energy and food commodities, as well as raw materials, especially metals. A lot has to go right for the U.S. economy to avoid a recession, but recent data points suggest the likelihood of a downturn is limited. In the meantime, though technology growth stocks have gotten cheaper, the rotation to conservative value issues appears to be intact.
Reviewing yesterday’s stock trading activity, sectors gained modestly across the board, led by energy, materials, and consumer staples. Among the most visible advancers were Occidental Petroleum (OXY), up 9.5%; Cardinal Health (CAH), rising 6.4%; and Dow Inc. (DOW), increasing 5.4% in price. Decliners included HP Inc., (HPQ), down 3.7%; Advanced Micro Devices (AMD), falling 3.2%; and Accenture plc (ACN), off by 1.7%. The number of advancing issues was 2.5x that of declining issues. The day’s trading reflects that investors are carefully selecting financially sound companies, with solid prospects for revenue, earnings, cash flow, and dividend growth, to add to their holdings.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
