Stock futures indicate a positive open to today’s trading. No significant economic news was scheduled for release prior to the bell. That said, at 10:00 a.m. this morning, the University of Michigan will report its preliminary consumer sentiment survey results for the month of May. Expectations are that this gauge will dip to a reading of 76.0 from 77.2 in April. Notwithstanding a large number of unfilled jobs, low unemployment, decent labor market participation, and continued wage growth, consumers are not in an especially good mood, particularly those nearer the bottom of the income scale. Elevated prices for goods and services are the culprits.
As this trading day progresses toward the close, following Federal Reserve Governor Michelle Bowman’s 9 o’clock talk on the economy and central bank policy, Chicago Fed President Austan Goolsbee, Minneapolis Fed President Neel Kashkari, and Fed Vice Chair for Supervision Michael Barr will all weigh in on the same subjects. We don’t expect them to veer very far from what Chairman Jerome Powell said after the conclusion of the early May Federal Open Market Committee meeting. Contingent on inflation, employment, and business trends, Mr. Powell believes the Fed is more likely to cut short-term interest rates, now 5.25%-5.50%, rather than raise them, in the second half of 2024. (Cuts could be limited to just one or two 25-basis-point moves.) Such a viewpoint has lent support to share prices this month.
Indeed, stock valuations have recovered this May in the aftermath of a negative April performance. In the trading period from May 6th to May 10th, the first full week of the current month, the major market indexes look to post decent gains. Through Thursday’s close, the blue-chip Dow Jones Industrial Average was up 1.85%, the broader Standard & Poor’s 500 index had advanced 1.69%, and the tech-heavy NASDAQ composite increased by 1.18%. These gains have come during a week of fairly limited economic data releases. For March, consumer credit tracked down and wholesale inventories slid. In the week ended May 4th, initial jobless claims rose above estimates and the previous-week level. The latest data points have encouraged hope among investors that the Fed soon will begin cutting interest rates.
Stocks have also moved higher on the health of corporate earnings reported for the first quarter of 2024. The earnings season is now winding down, and results have generally been better than many on the Street had anticipated. Importantly, a good number of management teams appear more optimistic about business trends for the remainder of 2024 and into 2025. They seem to be open to raising near-term capital budgets, auguring well for the greater economy and, in turn, share prices.
Next week, noteworthy economic data will be announced. Investors, along with the Federal Reserve, will be closely monitoring releases of the Producer Price Index and the Consumer Price Index figures for indications of whether or not inflation slowed in April. Other significant reports will come on retail sales, the housing sector, manufacturing (in the New York region), business inventories, industrial production, capacity utilization, jobless claims, and leading economic indicators. Stock-price action might be more pronounced. Too, any unforeseen major geopolitical events, in the Middle East or parts of Asia, for example, are often visibly impactful on short-term index performance.
At this time, we reiterate that investors, when considering equities for commitment, should focus on sector-leading companies with strong finances and good earnings and cash-flow records. Diversification is, of course, always a prudent long-term strategy. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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