Stock futures are pointing to a soft opening this new trading day. This morning, S&P Global will release its U.S. purchasing managers survey for the month of April. Readings were favorable for March, with the services component at 58.0, versus 56.5 in February, and the manufacturing output figure at 58.8, up from 57.3 in the previous month. (A reading above 50 indicates economic expansion, while one below that mark reflects a contraction.) Expectations are for slight declines in both components for April. Inflation is beginning to weigh on consumer spending and corporate profits. The actual data from the survey, along with company earnings announcements for the first quarter of 2022, including those from American Express (AXP), Kimberly-Clark (KMB), and Verizon (VZ), will impact share-price performance today.
So far in the current week, the blue-chip Dow Jones Industrial Average has held on to a modest gain of 1%, while the broader Standard & Poor’s 500 Index has been flat and the growth-stock oriented NASDAQ has suffered a 1.3% loss. Recent housing data showed rising home prices, due to limited inventories; restrained sales volume, as mortgage rates increase; and sluggish new building starts because of materials and worker shortages. One key data point that positively influenced trading in the week was initial unemployment claims, which remained at a low level. Meanwhile, the Russia-Ukraine conflict continues to drag on, to the detriment of the global supply chain, especially with regard to food, energy, and metal commodities. High inflation has been sustained.
Federal Reserve officials appear to believe that they have some catching up to do in their just-launched inflation fight. The central bank upped short-term rates by one-quarter of a percentage point in March, and it’s widely thought that the Fed will implement a one-half-point hike at its early May meeting. Chairman Jerome Powell has stated that more than one half-point action might be appropriate. Upcoming inflation reports will be closely monitored, with the Fed adjusting its strategy according to the trend line. In the second half of 2021, price growth for goods and services was elevated, so the year-to-year comparisons in the back half of 2022 could be more subdued. Still, price levels likely will stay high, pressuring economic growth in the near term. We are optimistic that the Fed can get control of inflation and possibly execute a “soft landing” for the economy, in other words, avoid a recession. If such a scenario holds true, stock prices ought to improve later this year.
In yesterday’s trading, all 11 major market sectors posted losses. Some highly visible decliners were Facebook social media parent Meta Platforms (FB), down 6.2%; streaming services provider Netflix (NFLX), off 3.5%; and marine shipping company Matson (MATX), falling 3.4%. Bucking the downward trend in the day were United Airlines (UAL), gaining an impressive 9.3%; telecom AT&T (T), rising 4.0%; and American Airlines (AAL), advancing 3.8%. Some pundits have characterized the current situation on Wall Street as a “stock-pickers’ market,” meaning that, though a particular sector may be displaying weakness, a few reliable winners can be identified. For example, though the transport sector is struggling, the airlines are performing well, as the economy reopens from the ill effects of the coronavirus and people travel more. With interest rates moving higher, it’s best that investors focus on companies having favorable pricing power, as well as good historical profitable-growth records; dividend payers are especially attractive.
– David M. Reimer
At the time of this article’ writing, the author did not have positions in any of the companies mentioned.
