Leading up to the new trading day, the domestic stock market indexes appear set to suffer another week of losses. Stock futures are pointing to a lower opening.
At 8:30 this morning, the U.S. Bureau of Labor Statistics released jobs data for the month of February. Employers added staff at a healthy monthly pace of 678,000, and the unemployment rate dipped to a low 3.8%. Job participation edged up to 62.3%. With the coronavirus apparently fading into the background, and government officials relaxing mask and other disease-prevention mandates, people are now more willing to venture outside of their homes and return to work stations and other public venues.
The Federal Reserve is closely monitoring the health of the labor market and the overall economy, ahead of its mid-March meeting. On Wednesday, March 2nd, in testimony before Congress, Fed Chairman Jerome Powell indicated that he would be most comfortable initially raising short-term interest rates by one-quarter percentage point. He stated a willingness, however, to successively increase rates, possibly in more aggressive increments if inflation does not begin to meaningfully subside. There appears to be sufficient momentum in the economy for the central bank to avoid tipping the U.S. into a recession.
Additional clarity regarding the coming interest rate cycle lent some support to equities prices. Still, considerable political and economic uncertainty persists, as is reflected in the elevated share-price volatility of late. Russia is pressing deeper into Ukrainian territory with violent military strikes. Western governments have imposed financial and economic sanctions. Though sanctions have not yet been placed on Russia’s energy sector, most commercial market participants are nonetheless refusing to trade the country’s oil and gas. That has led to a surge in the prices of these commodities. Higher energy costs threaten to exacerbate already elevated global inflation. As a result, corporate earnings could come under stress. However, we are cautiously optimistic that Russia’s military venture will be limited to Ukraine. Too, we believe the supply-demand dislocation in the economy will slowly abate in the months ahead. Furthermore, the Federal Reserve ought to meet with a fair degree of success in containing inflation. Economic expansion seems likely to progress in the coming quarters. Of course, such a scenario is not guaranteed. Thus, investors should maintain diversity in their portfolios.
At this time, stock market pundits are divided as to whether equities prices have reached a bottom. Given the lingering macroeconomic uncertainty, it’s probably best to hold a significant weighting of cash. Price declines this year do present a few tempting opportunities, especially in the tech sector, but restraint seems prudent. Those wanting to put more cash to work in the immediate term would probably do well to adopt a “dollar-cost-averaging strategy” (i.e., buying shares in equal, periodic increments). In Thursday’s trading, the trend favoring conservative stocks held up. Among the most active issues yesterday were shares of Kroger (KR), Best Buy (BBY), and Dollar Tree (DLTR), advancing 11.3%, 8.9%, and 4.7%, respectively. Conversely, shares of both Advanced Micro Devices (AMD) and Darden Restaurants (DRI) fell 5.3%, and PayPal (PYPL) stock was down 4.9%.
– David M. Reimer
At the time of this article’ writing, the author did not have positions in any of the companies mentioned.
