This morning, the economic release schedule is again rather sparse, with the only report of significance coming from the Labor Department. At 8:30 A.M. (EDT), we learned that initial jobless claims for the week ending May 4th totaled 231,000, which was higher than the expected forecast of 215,000. Sprinkled in among the economic releases this week was commentary from several Federal Reserve officials. This afternoon, San Francisco Fed President Mary Daly will provide remarks on the U.S. inflation situation and the central bank’s near-term role in promoting price stability.
The equity futures, which were down modestly heading into the labor market data, are now indicating a mixed start to the trading day. It should be noted that Treasury yields did move down a bit on the claims data, which could help the case of the market bulls over the course of today’s session. Still, our sense is that the major market averages, barring any unforeseen external shocks, may trade in a tight band over the next few sessions leading up to the release of April consumer and producer price data next week. Those reports will provide another snapshot on the U.S. inflation situation and what role it may play in the “data-driven” Fed’s stance on near-term monetary policy. This morning, the Bank of England held its benchmark interest rate steady.
With first-quarter earnings season starting to wind down, and the aforementioned light economic calendar this week, investors are continuing to focus on the Federal Reserve and its next monetary policy move. The calls heading into this year for as many as six cuts to the federal funds rate, which currently sits at 5.25% to 5.50%, will not come close to fruition, but last week’s softer-than-expected April job creation figures and accompanying slowing in the pace of average hourly wage growth, from 4.1% to 3.9% last month, did bring renewed hope that the Federal Open Market Committee (FOMC) will reverse course and begin cutting the benchmark short-term interest rate later this year.
The U.S. equity market also seems to be taking its cue from the U.S. Treasury market in recent trading sessions. Early last week, stocks sold off after Treasury yields rose on hotter-than-expected first-quarter inflation data. Specifically, the Personal Consumption Expenditures (PCE) Price Index, which is the assessment of inflation most closely tracked by the Federal Reserve, climbed 3.4% during the first quarter, up sharply from the 1.8% increase recorded in the final period of 2023. However, since then equities have reversed course, as Treasury yields retraced last week’s gains and then some on the aforementioned weaker-than-expected April labor market data. The rate on the benchmark 10-year Treasury note has stabilized around the 4.50% mark and that has brought some calmness to the stock market. The utilities sector has been the best performing segment this week. Lower rates on fixed-income securities make the higher-yielding utilities more attractive options for income-oriented investors, hence the recent pick-up in buying.
As noted above, the breadth of first-quarter earnings releases has declined, as the reporting season is winding down. That said, we did get a few notable reports since the close of trading yesterday afternoon. AirBNB (ABNB) reported strong first-quarter revenue and earnings-per-share results, driven by a 12% increase in gross booking volume. However, shares of the online vacation rental company are trading lower in extended hours on weaker-than-expected second-quarter guidance. Likewise, the stock of semiconductor company Arm Holdings (ARM) is trading lower in pre-market action. The company surpassed revenue and earnings forecasts, but investors were disappointed that the full-year revenue forecast was below prognostications. Investors were looking for more and because they didn’t get such, the high price-to-earnings multiple stock sold off. Moving ahead, the spotlight will soon shine on the results from the retailers, many of which are set to report April-quarter results. – 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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