If stock futures are any indication, it looks as if the major market indexes will close lower for this week, ending today, July 1st. Like other recent rallies, that of the prior week proved fleeting. This week started off with fairly positive durable goods and housing sector data, followed by disappointing consumer confidence and spending, household income, and inflation readings. This morning, S&P Global will release its final U.S. manufacturing purchasing manager’s index (PMI) gauge for June, which is expected to slip modestly to about 52.0 from 52.4 in May. The Institute for Supply Management will unveil its own manufacturing PMI index read for June, anticipated to narrow to 54.3% from 56.1% in the previous month. Furthermore, the U.S. Census Bureau will announce construction spending numbers, with economists expecting a 0.3% expansion for the month of May, versus a 0.2% rate of growth in April. Should the forecasted negative trends hold true, stocks will probably remain under pressure.
The first half of this year marks the worst start for the Standard & Poor’s 500 since 1970. Thursday’s stock trading contributed to that dismal observation, with all sectors in the red, excluding utilities. The volatile energy sector was a notable drag on overall share-price performance. Winners on the day included electric utility Exelon (EXC), defense contractors Northrop Grumman (NOC) and Lockheed Martin (LMT), insurers Progressive (PGR) and Travelers (TRV), and wholesaler Costco (COST), all generally gaining a couple of percentage points (NOC was up more than 3%). Several stocks posted mid-single-digit declines, pharmacy Walgreens Boots Alliance (WBA), auto manufacturer General Motors (GM), gaming enterprise Caesars Entertainment (CZR), services company HCA Healthcare (HCA), leisure business Norwegian Cruise Lines (NCLH), and distiller Constellation Brands (STZ) among them.
Investors have lost quite a bit of net worth this year due to the stock market declines. Evidence shows that even the affluent are beginning to be stressed by inflation and are pulling back on discretionary spending. The Federal Reserve’s efforts to contain price growth, via short-term rate hikes, appear to be having an impact on the economy. How much so, should become clearer when corporations start to announce June-quarter earnings results in a couple of weeks. Stock market volatility seems sure to persist through the end of 2022. Many investors have turned to energy, utility, healthcare, and consumer staples stocks to preserve portfolio value. We note that, historically, bear markets have not ended until the Fed reverses course and begins to cut interest rates to reignite economic growth and, typically, bring a recession to conclusion. (Note that we do not predict recessions.) Stocks, especially those in the technology sector, have taken a beating. We are probably nearing a market bottom. There’s no rush, but investors might want to start to consider gradually adding growth equities to their holdings. Though share prices could well decline further in the short run, current quotations are now at more reasonable levels.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
