Before The Bell
The major stock market averages picked up where they left off and moved higher to begin the second half of the year. Broadly, optimism about the economy and earnings has been winning the tug-of-war over concerns about higher inflation and interest rates.
With a strong first half in the books, investors are now looking for the upcoming earnings season to provide the next leg up for stocks. Corporate profits should come in very strong overall, given the notable bounce back underway as businesses get back to normal with the pandemic winding down.
As usual, though, there is uncertainty as to whether the good news has been priced into the market. The S&P 500 (up 22 points) set an all-time closing high on Thursday and the NASDAQ (up 18 points) and the Dow Jones Industrial Average (up 131) are near their peaks.
Certain sectors of the economy clearly have more room to run, including airlines, leisure, and hospitality. Travel in the United States is set to ramp up in a big way over this Fourth of July holiday weekend. Vacations, trips, and visits to friends and relatives are back on the to-do list.
But international travel may take longer to come back, owing to lingering concerns over the virus and variants, as well as an unwillingness to deal with any restrictions that may remain in place.
GDP also stands to benefit as supply chains slowed due to Covid catch up with booming demand. That would likely mean more auto sales, since vehicle manufacturing has been held back by chip shortages.
Meanwhile, the housing market is being supported by low mortgage rates, as the average rate for a 30-year loan recently dipped back below 3.00%, according to Fannie Mae. Reports of an increase in cash deals in some markets points to healthy demand, too, although sales may be held back somewhat by supply constraints.
In short, there would seem to be a path toward sustained economic expansion and a rise in corporate profits that could push stocks higher. But Wall Street remains wary about whether or not the recent spike in inflation will fade away, and how soon the Federal Reserve will tap the brakes on its expansive monetary policy. Less help from the Fed is seen as a negative by the market.
As for Friday, stock futures are pointing to a modestly higher opening following a better-than-expected government employment report.
The financial markets are closed on Monday for the July 4th celebration. We wish all of readers a happy and safe holiday.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
