Based on the futures market, stocks look to open mixed this morning. Prior to the open, investors parsed data for the month of March. Retail sales dropped 1.0%, compared to a decline of 0.4% one month ago. Net of volatile auto business, sales fell 0.8%, versus a more-modest contraction of 0.1% posted in February. The latest retail figures were somewhat weaker than what economists had been expecting. It’s now apparent that the Federal Reserve’s current rate-hiking policy is slowing the domestic economy, potentially leading to a recession. March industrial production and capacity utilization numbers were rolling in, as this write-up went to press. The consensus on Wall Street is that these measures will show only slight improvements. Later this morning, February business inventories and April consumer sentiment readings will be released, the former likely displaying some expansion and the latter probably holding firm at an unprepossessing level.
Notwithstanding an uneven performance on Wednesday, the major domestic stock market indexes eked out gains in the four trading days ended yesterday. Progressing toward midweek, stocks were flat to up, as investors were anxiously awaiting updated inflation data. The headline Consumer Price Index indicated a slowing of inflation in March, to 5.0%, year over year, from 6.0% earlier, while the core price index, excluding food and energy, increased last month, to 5.6% from 5.5% in February. Such mixed signals caused stocks to waffle on Wednesday. The next day, the core Producer Price Index unveiled a more pronounced easing of year-on-year inflation, to 3.6% growth, down from 4.5% in the prior month. Also, jobless claims ticked higher for the week ended April 8th, while previous-week continuing claims rose slightly. Stocks moved higher on the new information.
For all of this week, the stock indexes look to gain headway, possibly with advances in the 1%-2% range. Lately, the blue-chip Dow Jones Industrial Average has performed better than the broader Standard & Poor’s 500 Index and the tech-weighted NASDAQ Composite. Since inflation, though easing, remains well above the Fed’s 2% target, and the jobs market is proving resilient, another one-quarter percentage point hike in short-term interest rates, to 5.00%-5.25%, seems likely at the central bank’s upcoming early May meeting. Recently, a few Fed officials have hinted at a pause in rate increases, beginning in June. That will, of course, depend on economic data, companies’ March-quarter earnings reports (beginning today with the top banks), and trends in the ailing financial sector.
At this juncture, it seems that large-cap technology issues, such as Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOG), Meta Platforms (META), and Netflix (NFLX) have, collectively, ceded some of their positive influence on the broader market to other less-popular equities. This is to say that strength in the market is becoming more broadly based, which is reason for optimism. Indeed, over the past several days, there has been greater investor interest in health care, energy, and cyclical industrial stocks. Note that regional bank stocks may stay under pressure, considering prospects for narrower interest rate margins (the difference between rates paid on deposits and received on loans.) The Fed appears close to the end of its rate-hiking strategy, potentially supporting stock valuations to year end. Still, there remains a good deal of uncertainty. We reiterate that investors should maintain a fair measure of diversification within their individual portfolios, balancing growth and defensive holdings.
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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