The stock futures market is pointing to a positive open for this new trading day. A trove of economic data is streaming in, and will set the tone for share-price trends through the closing bell – if there is little debt-ceiling news out of Washington. The Bureau of Economic Analysis has reported that for the month of April, the Personal Consumption Expenditures (PCE) price index advanced 0.4% from March and was up 4.4%, year over year. Readings of the core PCE, which excludes the volatile food and energy sectors and is the preferred inflation measure for the Federal Reserve, expanded at a monthly rate of 0.4%, and at a yearly pace of 4.7%. Inflation is still running at a high level and, as we have noted for many weeks, remains well above the Fed’s targeted 2.0% annual expansion.
Also prior to today’s trading session, there were other important April reports. Durable goods orders stepped up 1.1%, month to month; stripping out transportation figures, orders fell 0.2% though. Business activity is quite resilient in the face of increased interest rates. Nominal personal income and spending rose 0.4% and 0.8%, respectively. The consumer remains in a fairly good financial position, supported by a solid jobs market. Retail and wholesale inventories were up 0.2% and down 0.2%, respectively. Many companies have gotten their inventories more in balance with demand, in the wake of the global pandemic, and, going forward, shelf stocking should pick up some. Shortly, final consumer sentiment survey data for May will be unveiled. We expect another tepid result.
Following a respectable showing last week, stocks may well struggle to post improvements for all of this week. The markets began to come under stress early Tuesday, when S&P Global rolled out its “flash’’ purchasing managers indexes, which indicated greater strength in the services sector and softer manufacturing activity for May than Wall Street was expecting. At the same time, continued uncertainty over whether the White House and Congress soon will reach an agreement on the nation’s debt ceiling, avoiding a default, pressured share prices. Additionally, Federal Reserve officials appear undecided, regarding short-term interest rates. A few of them have argued for further hikes above the current range of 5.00%-5.25% to combat inflation, while others think a pause is more appropriate. The Fed will meet to discuss this issue on June 13th and 14th. Recent relative stability in the regional banking sector provides the central bank flexibility to raise rates again.
It’s notable that large-cap technology stocks have been behind the relative strength of the broader market averages. There’s considerable excitement surrounding the rising potential of generative artificial intelligence (AI) to bolster overall productivity, as well as corporate earnings. NVIDIA Corp. (NVDA) is in the spotlight, as it stands to be a significant supplier of the semiconductor devices needed for this emerging market. Advanced Micro Devices (AMD), Taiwan Semiconductor (TSM), Alphabet (GOOG), Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT) are among those also jockeying for an advantage in AI; their shares are outperforming the Standard & Poor’s 500 (S&P 500) by a wide margin.
On a negative note, however, the year-to-date gains posted by the NASDAQ Composite and the S&P 500 have been mainly supported by these large caps, indicating that positive momentum is not broadly based. (The blue-chip Dow Jones Industrial Average, weighted a bit more to the old-economy industries, is in the red, thus far, this year.) For now, it’s probably best that investors stay with well-heeled industry leaders, at least until the U.S. debt-ceiling matter is resolved and the Federal Reserve paints a clearer picture of its rate strategy for the rest of 2023.
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
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