Just prior to the bell, the U.S. Department of Labor released a jobless claims figure of 261,000 for the week ended June 3rd. That compares with economists’ expectation of 235,000 and the week-earlier level of 232,000. Continuing claims ticked down by 37,000, to 1.757 million. Unemployment filings have picked up over the course of this year, slowly trending toward the historical average of 367,200 (since 1967). The markets’ reaction to the latest data is, thus far, positive, in that it makes a pause in Federal Reserve rate hikes more likely.
Shortly, investors will get a read on April wholesale inventories, anticipated to show a slight contraction of 0.2%, versus a flat month-to-month comparison in March. In the wake of the pandemic, and related supply shortages, companies are now working down inventories they had built up in order to satisfy customer demand in a timely manner.
At mid-week, the major stock market indexes were modestly in the red. A flattish performance could still be achieved for the full week. (Note: No major economic data are scheduled to be reported tomorrow.) Services sector measures for the month of May continued to indicate expansion, though not as great as previously seen. Also, factory order growth came in at a slower rate for April. Too, the U.S. trade deficit has expanded a bit more than expected. Consumer credit in April was $23 billion, above estimates, but lower than the prior-month borrowing of $26.5 billion. Taken all together, this data had a relatively limited impact on share prices. More notable was the effect of disappointing export tallies from China, suggesting slower global business activity. Investor concern also increased when The World Bank announced that it had revised its 2023 and 2024 outlooks for global growth further down in the 2% range.
The looming possible domestic recession is, as many Wall Street pundits have said, one of the most anticipated downturns in recent memory. Ten successive short-term rate hikes, on the part of the Federal Reserve, to a Federal Funds range of 5.00%-5.25%, have led to predictions of an economic contraction. The start date, though, continues to be pushed out into the future, with some experts saying a recession may not arrive until early 2024. Consumers still have savings from government stimulus paid out during the pandemic, and jobs remain plentiful. As well, wages are elevated. Services demand has been resilient. All that said, consumers are becoming cautious, trading down to less-expensive purchases. Additionally, activity in the manufacturing, commercial business, and home remodeling/furnishing sectors is slowing. Higher interest rates are putting a brake on the economy. The Federal Reserve, with an eye on lending levels and the health of the banking sector, seems likely to take a pause in its inflation-fighting program, at least for this month.
Year to date (as of June 7th), the major stock market indexes are in positive territory. Indeed, the tech-heavy NASDAQ Composite is up more than 26%, the broader Standard & Poor’s 500 Index has advanced over 11%, and the blue-chip Dow Jones Industrial Average has gained 1.6%. Generally, as we have mentioned before, a select group of technology stocks has driven the most visible improvements in the indexes. Those stocks include NVIDIA (NVDA), Advanced Micro Devices (AMD), Alphabet (GOOG), Amazon.com (AMZN), Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT). There are some long-time investors in these issues selling and taking profits but, given the excitement surrounding generative Artificial Intelligence and its potential to boost overall productivity, the current positive run might not yet be over. Still, a rising number of market prognosticators, notwithstanding the threat of a recession in the near term, are anticipating a wider market shift from growth to cyclical and small cap equities, a scenario we would not be surprised to see unfold. Investors may want to gradually broaden their holdings beyond the tech giants to the leading industrials, which appear to be gathering attention. – David M. Reimer
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
