The stock futures market is flashing green for a positive open to this new trading day. Wall Street is reviewing anxiously anticipated May employment data released, pre-trading, by the U.S. Department of Labor. The data showed that 339,000 jobs were added in the month, versus economists’ much more modest expectations for a 190,000 increase and the also strong prior-month level of 253,000. Unemployment came in higher, at 3.7%, above the 3.5% anticipated by the experts, and exceeded the April measure of 3.4%. Domestic hourly wages expanded 0.3%, month to month, less than the previous 0.5% gain, which was not a surprise. Year to year, wages stepped up 4.3%, slower than the 4.5% pace registered in April. On balance, though softening some, the job market continues to prove fairly resilient in the face of mounting recessionary pressures.
Last night, the Senate approved the bipartisan bill to suspend the debt ceiling and make budgetary changes. This takes the contentious debt cap off the table until January of 2025.
Stocks appear on track to finish this holiday-shortened week flat to up. Earlier in the week, investors reacted to an improved consumer confidence reading, higher U.S. job openings, tepid jobless claims filings, weaker manufacturing numbers, and Federal Reserve officials’ comments suggesting a pause in short-term interest rate hikes at the central bank’s upcoming mid-June meeting. Through Thursday’s close, the tech-heavy NASDAQ Composite was up 1.0%, the broader Standard & Poor’s 500 (S&P 500) index was 0.4% higher, and the blue-chip Dow Jones Industrial Average (DJIA) was down slightly.
Next week, the Fed will gather more-recent information on factory orders, the health of the services sector, consumer credit levels, and initial jobless claims. Chairman Jerome Powell seems to be indicating that the Fed, this month, will hold interest rates steady, in the range of 5.00%-5.25%. Mr. Powell and other Fed officials have stated that rates could resume increasing as soon as next month, depending on economic data trends. A relatively firm job market, resilient consumer spending, and stubbornly high inflation back the case for further fiscal tightening. The central bank is cognizant that its series of 10 consecutive rate hikes, in an effort to combat inflation, is pressuring new lending to commercial enterprises and consumers. It realizes that additional rate hikes could tip the economy into a recession.
Year to date (as of June 1st), the NASDAQ has advanced a strong 26%, while the S&P 500 has risen more than 10% and the DJIA is down less than 1%. A small group of large-cap technology stocks, including NVIDIA (NVDA), Advanced Micro Devices (AMD), Alphabet (GOOG), Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT), have been leading the market. This is in the face of heightened concerns that a recession soon will take hold. There is considerable optimism surrounding generative Artificial Intelligence (AI), which holds out the prospect of substantial gains in business and personal productivity. Excluding these market leaders, stocks are up only marginally, so far, this year.
In the months ahead, as the economic picture becomes clearer and the Fed charts its strategy to the end of this year, we suspect that investors will be more willing to assume risk and that strength in the equities market will become more broadly based. Investors would probably do well to hold on to some of the large-cap tech leaders, but also to wade into the cyclical stock sector, initially focusing on the biggest industry players, such as American Express (AXP), Boeing (BA), Caterpillar (CAT), Cummins (CMI), General Motors (GM), and JPMorgan Chase (JPM).
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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