Stock futures are pointing to a weak opening today. Economic data released this week showed that wage and raw materials inflation remains significant. Still, personal income is advancing and consumer spending continues to rise. First-quarter gross domestic product, reported on Thursday, contracted largely due to less corporate inventory building and fewer imports. Both solid consumer and business spending point to a resumption of U.S. growth in the months ahead. For this week, share prices seem likely to post modest declines, overall.
Notably, share-price volatility picked up this week. The major domestic equities markets were up slightly through Thursday’s close. Decent price gains were realized yesterday across the Dow Jones Industrial Average, Standard & Poor’s 500 Index, NASDAQ, and the Russell 2000. Tech stocks took the lead. On Tuesday, software developer Microsoft (MSFT) and Alphabet (GOOG), the parent of Internet search engine Google, turned in solid operating results. Meta Platforms (FB), creator of social media venue Facebook, and telecom equipment maker Qualcomm (QCOM) followed up with similarly good performances. That set the stage for favorable price performance on Thursday. Meta, Qualcomm, Amazon (AMZN), Apple (AAPL), and Intel (INTC) advanced 17.8%, 9.8%, 4.6%, 4.5%, and 3.6%, respectively. After the markets closed, however, investor sentiment soured. Most visibly, investors were not all that pleased with late-day earnings reports and guidance from Amazon, Apple, and Intel, which all posted sharp share-price declines in the afterhours.
So far, the in-progress earnings season has been a reasonably good one, notwithstanding some disappointments. Roughly 80% of companies reporting March-quarter results have beaten analysts’ estimates. Investors, however, are focusing on the coming quarters, and there is much uncertainty, which is pressuring share prices. Wage and materials inflation is eating away at corporate profit margins. Prices for services and goods are rising at faster rates than pay increases, and this is starting to affect consumer budgets; sales growth is set to slow in the months ahead. Another concern is how aggressive the Federal Reserve will be in raising short-term interest rates and trimming its balance sheet over the next several months. Furthermore, an end to the Russia-Ukraine conflict and coronavirus-induced lockdowns in China, now roiling global energy and materials supplies, appears nowhere in sight. All considered, we advise investors to maintain significant weightings of conservative stocks in their portfolios. Industry leaders with consistent sales and earnings growth, throughout the business cycle, and healthy finances are, in our opinion, the most attractive holdings at this time. They may be found, for example, within the consumer staples, communications, and utility industries. – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
