Stocks look to stage a mostly positive open to today’s market trading. Prior to the bell, the U.S. Department of Labor released its initial jobless claims tally for the week ended March 23rd. Claims totaled a modest 210,000, short of economists’ estimate of 211,000 and matching the previous week’s figure. Continuing claims ticked up by 24,000, to 1.82 million. Though the nation’s number of available positions has fallen, it’s still a good margin above the population of people seeking work. The unemployment rate has increased, but that measure is still low, historically. Wages are rising, albeit at a slowing pace. Job turnover has lost some momentum. On the whole, the current employment situation is considered to be healthy.
Also before the opening bell was struck, the Bureau of Economic Analysis announced its second revision to fourth-quarter 2023 Gross Domestic Product growth. The Bureau stated that the economy expanded 3.4%, two-tenths of a point above the earlier calculation. Though below the strong third-quarter pace of 4.9%, this rate is fairly respectable, viewed against the long-term trend. In light of lingering inflation, economists generally expect business activity to ease as 2024 progresses, notwithstanding recent better-than-anticipated momentum.
Later this morning, possibly influencing share prices, will be the National Association of Realtors’ release of February pending home sales, expected to show marked improvement, and the University of Michigan’s final report on March Consumer Sentiment, estimated to be unchanged at 76.5; February’s final level was 76.9. Tight inventories and high demand are weighing on the housing sector, and prices continue to display strength. That doesn’t help the overall trend in inflation. Over the past year, consumer sentiment has improved, albeit haltingly, despite concerns about the high cost of borrowing and elevated goods and services prices.
Markets are closed tomorrow for the Good Friday holiday, so investors will have Easter weekend to review Personal Consumption Expenditures price index data for last month. The index is closely monitored by the Federal Reserve for determining short-term interest rate policy. Expectations are that the headline numbers will be slightly higher, but the important core index figures, which strip out volatile food and energy prices, might be flat to down. Any moderation of this inflation measure would be well received on Wall Street. Too, reports of personal income and personal spending for February will be influential. Fed Chairman Jerome Powell will speak late tomorrow morning, likely commenting on the new data points. The central bank next meets to determine rate policy on April 30th and May 1st.
Since late last year, the Fed has essentially been guiding that it will probably reduce short-term interest rates, now 5.25%-5.50%, in three one-quarter-point increments, possibly starting at mid-2024. The Federal Open Market Committee is scheduled to meet June 11-12. Incoming economic data will have an impact on central bank rate policy. Should inflation prove resilient, the Fed may feel compelled to keep rates higher for longer. There’s some concern on the Street that rates might not be cut at all this year, a scenario we don’t expect. Seventy five basis points in reductions would probably keep share prices on a favorable track; solid corporate earnings reports would back such an assumption. Anything less could stress the stock market.
At this time, in the stock market, we are seeing a broadening of positive share-price performance. The major indexes might well post incremental improvements for this week. Leading technology issues are still gaining ground, though less decidedly, while “second-tier” tech stocks (e.g., Micron Technology (MU)) are stepping up in appreciation. As well, investors are looking more to energy, financial, healthcare, and industrial equities for gains; advances also are expanding beyond large capitalization issues to mid- and small cap alternatives. We advise maintaining ample portfolio diversification. – David M. Reimer
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
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