Today’s stock futures indicate a positive opening. Domestic market indexes appear on track to achieve gains for this week. The tech-heavy NASDAQ Exchange is closing out another week of outperforming the Dow Jones Industrial Average and the Standard & Poor’s 500.
Even with ongoing geopolitical and monetary uncertainty, investors are taking on a bit more risk, selectively buying growth issues. Caution is still warranted, however, given the as-yet-unresolved Russia-Ukraine conflict and its impact on global supplies of commodities. The United States and the North Atlantic Treaty Organization are ramping up pressure on the Kremlin, via economic sanctions and military asset posturing, in an effort to bring an end to the war. An escalation of the situation would roil the macroeconomy and stock markets.
Meanwhile, central banks are transitioning toward a strategy of raising interest rates to tamp down inflation. The Federal Reserve will endeavor to provide clarity on its planned moves, as new economic data come to light.
Following mixed reports on Thursday of encouraging U.S. weekly jobless claims figures and a disappointing showing of domestic durable goods orders for the month of February, this morning, the University of Michigan will release new data on consumer sentiment. Indications are that this data, covering the first half of March, will be quite soft. If this holds true, stock prices could come under some pressure. The U.S. economy remains healthy, but inflation is becoming a drag on consumer spending. Wage growth is lagging behind increases in the prices of goods and services. Many economists and Wall Street analysts are revising gross domestic product and corporate earnings growth estimates for 2022 downward. We point out, though, that even only slight earnings gains would be very respectable, considering tough comparisons with the pace of last year in the wake of the most severe effects of the coronavirus. Assuming a gradual easing of inflation in the coming months, thanks to likely incremental improvements to supply-chain flows and progressing central bank intervention, the economic picture ought to brighten; a cessation of Russia-Ukraine hostilities would, of course, also be a plus. We are cautiously optimistic that stocks will appreciate in the back half of 2022. That said, uncertainty still rules the day, so investors would do well to focus on financially-sound companies with solid long-term profitable-growth prospects.
In Thursday’s session, all eleven of the major market sectors posted gains, with Information Technology and Materials leading. Some of the top performers included computer graphics developer NVIDIA (NVDA), up 9.8%; semiconductor manufacturer Intel (INTC), advancing 6.9%; and flat-rolled steel producer Cleveland-Cliffs (CLF), rising 12% in share price. Visible laggards for the day were data analytics provider Nielsen Holdings (NLSN), down 3.8%; energy exploration & production company Occidental Petroleum (OXY), off by 3.5%; and residential products maker Fortune Brands Home & Security (FBHS), falling 2.5%. Over the near term, unexpected political and economic events could reignite market volatility. It’s best that investors focus on the long run, selecting stocks, such as UnitedHealth Group (UNH), that have proven their ability to prevail across the business cycle.
– David M. Reimer
At the time of this article’ writing, the author did not have positions in any of the companies mentioned.
