This morning, we received a few important reports on the U.S. economy. At 8:30 A.M. (EDT), the Labor Department reported that initial jobless claims for the week ending May 11th totaled 222,000, which was down 10,000 from the previous week’s revised tally of 232,000. Continuing claims totaled 1.794 million. In a separate release, the Commerce Department reported April housing starts and building permits figures—two forward-looking indicators of home sales—that were much weaker than forecasts. The residential construction data suggest that the restrictive monetary policies in place may be hurting the housing and homebuilding markets. Finally, April import prices rose 0.9% last month, which indicates that prices for goods entering the country are running higher than expected and that is not good news for the broader U.S. inflation environment. Today, we will get commentary from a number of senior Federal Reserve officials, including New York Fed President John Williams, Cleveland Fed President Loretta Mester, and Atlanta Fed President Raphael Bostic.
The equity futures, which were modestly positive heading into the economic releases, are now presaging a mixed and relatively flat start when the trading day kicks off stateside. U.S. equities are getting a boost from the April Consumer Price Index (CPI) report, which was released before the start of trading yesterday. That report showed a modest decline in the growth of consumer prices last month and was viewed as a positive for the Federal Reserve in its battle to tame inflation. Although Fed Chairman Jerome Powell reiterated that monetary policy is sufficiently restrictive right now and rates may have to stay high for longer, stock market participants were emboldened by the cooler inflation numbers at the consumer level. (Conversely, producer (wholesale) prices jumped last month.) The CPI data pushed Treasury yields lower and ignited a buying spree yesterday that drove the major equity averages to record highs.
Meanwhile, first-quarter earnings season is nearly closed, save for a few reports from the retailing sector and the latest results from semiconductor giant NVIDIA (NVDA), which is scheduled to release its financials next Wednesday (May 22nd). The NVIDIA report will be a major focus of Wall Street, as it is a proxy for the state of the AI revolution and it could have a big impact on the tone of trading to end May, a month that has historically been a weak one for equities, but anything such this year.
Since the closing of trading yesterday afternoon, we did get a few important earnings results. The headline reports came from Dow-30 components Walmart (WMT) and Cisco Systems (CSCO). The nation’s largest retailer reported earnings per share of $0.60, on a 5.9% revenue increase, to $161.5 billion. Of note, comparable-store sales increased a better-than-expected 3.8% in the latest quarter, and the company upped its full fiscal-year prognostications. Shares of the mass merchandiser are up in pre-market action and looking at hitting a record high at the start of trading. Likewise, technology company Cisco Systems beat top- and bottom-line forecasts and lifted its full-year revenue guidance, driving tech-related equities higher in extended hours trading. On a negative note, shares of Under Armour (UAA) are under notable selling pressure after the athletic apparel company announced a restructuring plan that was greeted unkindly by Wall Street.
In merger and acquisition news, Palo Alto Networks (PANW) has agreed to purchase the cloud security software assets from International Business Machines (IBM). This deal deepens the relationship between the two technology companies in jointly selling and developing artificial intelligence-powered security products. Shares of Palo Alto Networks were modestly higher on news of the agreement. Terms of the deal were not disclosed.
In general, the modestly cooler CPI data gave a boost to the higher-growth sectors, including technology. The recent buying in the financial services sectors continued yesterday, helped by the talk of a possibly less-restrictive Federal Reserve in the second half of this year, though many senior Fed officials continue to stress the need to keep interest rates high for longer. Likewise, the lower Treasury yields (the rate on the benchmark 10-year Treasury note is trading more than 30 basis points below where it was last week) gave a big boost to the higher-yielding utilities. When Treasury yields fall, the utilities group becomes a more-attractive investment option for income-oriented investors. All in all, most of the equity groups rallied yesterday following the inflation data. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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