The futures market is indicating a positive open to today’s trading after Thursday’s dramatic dip in all the indexes. Early this morning, preliminary durable goods figures for the month of April were released. Monthly orders increased a very solid 0.7%, versus economists’ outlook for a 1.0% decline and the revised 0.8% advance recorded for March. Excluding the volatile transportation sector, orders picked up 0.4%, compared to expectations of a flat showing and the prior read of a 0.2% improvement. These latest favorable performances depict the broader economy’s resilience to lingering inflation and elevated interest rates.
Yesterday’s retreat was triggered by stronger-than-expected measures on the health of the domestic services and manufacturing sectors. This month’s ``flash’’ Standard & Poor’s (S&P) services Purchasing Managers Index (PMI) rose to 54.8 from 51.3 previously. The ``flash’’ S&P manufacturing PMI hit 52.4, versus 51.1 in April. Such data suggest that the Fed may be more hesitant to reduce interest rates over the near term. Even the very strong quarterly report from NVIDIA (NVDA), a key maker of artificial-intelligence-facilitating chips, was not enough to prevent the overall skid.
Shortly, Federal Reserve Governor Christopher Waller will give a talk on the economy and central bank short-term interest-rate policy. Too, the University of Michigan will release its final May measure of consumer sentiment, which is anticipated to come in at a level of 67.6, compared to the earlier reading of 67.4. Consumer sentiment has been recovering in a halting manner since its recent low of 61.3 in November. People at the lower end of the income scale are struggling more with higher prices for goods and services than those at the upper end, weighing on overall sentiment.
For this trading week, stocks may be hard pressed to post gains. Through Thursday’s close, the tech-weighted NASDAQ composite was up just 0.3%, while the broader Standard & Poor’s 500 index was down 0.7% and the blue-chip Dow Jones Industrial Average was off by 2.3%. In the week, share prices were pressured by the public release of the Federal Open Market Committee’s minutes of its early May meeting. During that meeting, a few Fed officials voiced their opinions that further restrictive monetary policy, in the form of interest rate increases, might be warranted if inflation steps higher. The next meeting is scheduled for June 11-12. Wall Street is hoping for at last one 25-basis-point cut in the federal funds rate, from the current 5.25%-5.50%, before the close of 2024.
Next week, after the Memorial Day holiday, investors will get a chance to parse several new data points. They include the S&P Case-Shiller home price index, consumer confidence, initial jobless claims, revised first-quarter Gross Domestic Product, retail & wholesale inventories, and pending home sales. On Friday, important numbers on personal income, personal spending, and the Personal Consumption Expenditures price index, an inflation measure closely monitored by the Fed, will roll in.
Year to date, the NASDAQ, S&P 500, and the Dow have risen 11.5%, 10.4%, and 3.7%, respectively, which are solid performances in the wake of a strong 2023. Should the economy continue to expand without accelerating wage growth and inflation, stocks likely would gain further ground, though probably incrementally. Rate cuts on the part of the Federal Reserve would provide support. We expect rates to be lower by year end. Market volatility could pick up later in this presidential election year. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
