Stock market futures imply a negative opening today. Most prominently, this morning, the U.S. Labor Department released its employment report for the month of April. Not surprisingly, job growth stayed strong, with 428,000 positions added by employers. The unemployment rate held steady at a low 3.6% and labor participation declined a bit to 62.2%. Ahead, assuming more people become gainfully employed, prospects for an easing of wage inflation would improve. Later today, the Federal Reserve will report consumer credit figures for March, which may well influence trading through the market’s close. It’s more likely than not that this report will show consumer spending continued to be vibrant. Economists will be looking, however, for any signs that inflation is beginning to affect outlays for goods and services.
So far, this week has been a volatile one for stocks. On Wednesday, the domestic indexes posted sizable gains, following the conclusion of the Federal Reserve’s May meeting. In a press conference, Chairman Jerome Powell stated that the Fed is raising short-term interest rates by 0.50 of a percentage point, which was largely expected on Wall Street. Two moves, similar in magnitude, are widely anticipated in the upcoming June and July meetings. Notably, Mr. Powell said a 0.75-point hike was off the table. That sent markets surging higher. The next day, Thursday, however, stocks gave back all of their gains. Apparently, the bond market was of the opinion that half-point rate increases are not enough to tame inflation. This was evidenced by falling bond prices and rising yields. Most visibly, the 10-year Treasury bond yield rose to 3.066%. Investors implemented a broad liquidation of stocks yesterday. All eleven market sectors posted declines. Consumer discretionary and technology issues were the worst performers, falling about 6% and 5%, respectively. The two sectors displaying the most resiliency were utilities, off by 1%, and energy, down 1.5%. Social media company Meta Platforms (FB) and streaming services outfit Netflix (NFLX) both slid approximately 7%, while mobile phone maker Apple (AAPL) and retail building product supplier Home Depot (HD) each lost more than 5% in value. Some noteworthy gainers were medical device manufacturer Becton, Dickinson & Co. (BDX), up 2.4%, and cable operator Charter Comm. (CHTR) and food processor Campbell Soup (CPB) rising over 1% in share price.
Some on the Street have characterized Wednesday’s price action as a “relief rally.” Indeed, near-one thousand-point upward moves on the Dow Jones Industrial Average (DJIA), for example, are more common in bear markets than during bull runs. To provide more clarity, as of Thursday’s close, the DJIA and Standard & Poor’s 500 were both in correction territory, meaning that they are 10% or more below their 52-week highs; the NASDAQ, with a decline of over 20% from its recent record, is in a bear market. We note that short-term government and corporate bonds have not been safe havens in these difficult times. With trading volatility, velocity, and volume at elevated levels, it’s probably best that investors delay putting new cash to work in the stock market over the next few days. Once the dust has settled, and volatility eases, we advise selectively adding high-quality issues, such as environmental services company Waste Management (WM) and beverage giant The Coca-Cola Co. (KO) to individual portfolios. Favorable news, including a slowing of inflation or a conclusion to the Russia-Ukraine conflict, for example, likely would support a more sustainable market rebound. Such events, though, are difficult to predict.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
