This week, the major stock market indexes look to break a long-running losing streak, especially if they score another positive day as futures are suggesting early this morning.
In recent days, economic data showed that existing home sales softened, jobless claims held steady at a very modest level, and both manufacturing and services indexes, though still indicating expansion, stepped down.
Today, the University of Michigan will release its final June consumer sentiment reading, which is expected to match the month’s preliminary indication of 50.2, an all-time low, and investors will see the May new home sales data for the U.S. housing sector; a slight decline seems likely.
Over the four-day span ending with Thursday’s close, the Dow Jones Industrial average was up 2.7%, while the Standard & Poor’s 500 had gained 3.3% and the NASDAQ had advanced a solid 4.0%. The eleven market sectors turned in a mixed performance yesterday, with energy, materials, and financial stocks posting share-price losses. Most visibly, Amazon.com (AMZN), Apple (AAPL), Merck & Co. (MRK), and Walmart (WMT) improved in value by 3.2%, 2.2%, 3.2%, and 2.4%, respectively. Declining issues included Archer-Daniels-Midland (ADM), off by 7.3%; Schlumberger (SLB), Phillips 66 (PSX), and Deere & Co. (DE), each falling more than 6%; and Freeport-McMoRan (FCX) and Caterpillar (CAT), suffering close to 5% losses.
Wednesday and Thursday stock trading was influenced by Federal Reserve Chairman Jerome Powell’s testimony before Congress on the economy. Mr. Powell stated that the central bank remains firmly committed to fighting inflation. The Fed chief said he is hopeful that a “soft landing” can be attained, meaning that a recession can be avoided, but that would be a significant challenge. It seems that the Fed will consider either another 0.50- or 0.75- percentage-point hike in short-term interest rates at its upcoming meeting in late July, depending on inflation trends.
There are hints that the Federal Reserve is having an impact on inflation. Oil, natural gas, copper, and gasoline prices have pulled back from recent highs; employers are becoming a bit more tentative regarding new hires, suggesting an easing of wage expense growth; and momentum in the housing sector has softened, possibly signaling eventual price relief. We note that housing accounts for about one-third of the consumer price index. Meanwhile, the Biden Administration and the Fed are cautioning that they have limited control over food and energy price inflation. The ongoing conflict between Russia and Ukraine has had the biggest impact on these two important supply categories. Consumers are becoming more cautious in their spending, given an uncertain near-term economic outlook. Investors will be closely monitoring the next corporate earnings season, due to begin in mid-July, for more detail on how well the economy is faring and clues as to whether healthy profitable growth is sustainable.
We believe that consumer and business finances are in good enough shape to weather a possible mild downturn later this year or in 2023. A stabilization of goods and services prices could provide evidence of a soft landing, auguring well for stock market performance. Investors might want to consider carefully stepping back into the market, utilizing a dollar-cost-averaging strategy in purchasing equities as the rest of this year unfolds.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
