Stock futures are pointing in a negative direction this morning. Key employment figures for the month of May were released earlier today. Nonfarm payrolls increased 390,000, versus economists’ outlook for a gain of 328,000 and the previous month’s revised improvement of 436,000. The unemployment rate of 3.6%, stayed near a multi-decade low, essentially meeting Wall Street’s expectations. Labor force participation came in at 62.3%, which marked a slight improvement from the month of April. Shortly, S&P Global will report its final U.S. services purchasing managers index for May. Expectations are for a reading of 53.5, flat with that of April. Too, the Institute for Supply Management will provide its own services index measure, estimated to be 56.7%, compared to 57.1% in the previous month. Markets surely will move as investors digest all of this new information.
So far this week, stocks have weathered some negative predictions rather well. Jamie Dimon, the CEO of investment bank JPMorgan Chase & Co. (JPM) warned of a coming “economic hurricane;” Goldman Sachs (GS) COO John Waldron cautioned that unprecedented shocks to the economy are in the offing; Microsoft (MSFT) announced cautious forward-looking operating guidance due to a strong dollar; Automatic Data Processing (ADP) reported that domestic hiring is slowing; and Fed Vice-Chair Brainard, who has a reputation of being a “dove” when it comes to supporting financial markets with liquidity, stated that a pause in the central bank’s inflation-fighting strategy seemed unlikely, after probable one-half percentage-point hikes this June and July.
Through Thursday’s closing bell, the Dow Jones Industrial Average and the Standard & Poor’s 500 were both up about 0.3% for this week. Notably, the NASDAQ had advanced a solid 1.2%. In the Thursday session, every market sector gained, with the exception of Energy, which was only down slightly. Advancers included generator manufacturer Generac Holdings (GNRC), solar power company Enphase Energy (ENPH), airplane maker Boeing, (BA), and computer graphics developer NVIDIA (NVDA), up 10.3%, 9.0%, 7.5%, and 6.9%, respectively. Among declining issues were Hewlett Packard Enterprise (HPE) and Hormel Foods (HRL), both off by 5.2%, and medicines researcher Regeneron Pharmaceuticals (REGN), falling 4.3%. This morning’s futures suggest that markets will be flat to down for the full week.
The Federal Reserve’s efforts to rein in liquidity are having an impact on the economy, as reflected in consumers more carefully managing their spending budgets and commercial businesses becoming a bit conservative in allocating funds for staffing and expansion. This summer, investors will likely be closely monitoring upcoming company earnings reports and inflation data, as well as actions by the Fed, China’s management of the COVID-19 crisis, and the progress of the political conflict in Eastern Europe. Economic and political uncertainty, as well as stock market volatility, persist. Some investors are turning to U.S. Treasuries, the yields of which are up significantly, for income and a measure of asset preservation. At this time, we recommend staying with high-quality dividend-paying equities. It still seems too early to take on more risk in the current market.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
