Stock futures today are mixed, pulling back some from improved investor optimism earlier this week.
This morning, S&P Global will release its latest “flash” U.S. manufacturing purchasing managers index (PMI) reading for July. Economists expect a modest decline to 52.2 from last month’s reading of 52.7. At the same time, S&P Global will unveil its “flash” U.S. services PMI, which is anticipated to modestly expand to 53.0 from the previous month’s measure of 52.7. (PMIs of above 50 indicate expansion, while those below 50 show that a contraction is in progress.)
These data points follow reports of weaker housing sector momentum, in terms of builder sentiment, housing starts, and existing home sales; rising initial jobless claims; softer manufacturing, as measured by the Philadelphia Federal Reserve; and a negative economic indicators figure earlier in the week.
Importantly, corporate earnings for the June quarter are streaming in, and the numbers have not been the disaster that many on Wall Street had feared. The latter largely accounts for the improved optimism visible in share prices over the past few days. The major market indexes, with the NASDAQ solidly in the lead, appear set to score low-to-mid-single digit gains for the full week.
Stocks gained on Thursday, with all sectors, excluding energy and communications, rising. Notable laggards included AT&T (T), Verizon Communications (VZ), United Airlines (UAL), American Airlines (AAL), Exxon Mobil (XOM), and ConocoPhillips (COP). Tesla (TSLA), up nearly 10%, led the gainers. CSX Corp. (CSX), ASML Holding (ASML), and Goldman Sachs (GS) were others posting solid, albeit lesser, share-price advances.
Next week marks a crucial period in the current earnings reporting season. Corporate heavyweights Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOG) are scheduled to release their June-quarter operating results. The magnitude of earnings “beats” or “misses,” versus consensus analyst estimates, likely will determine stock market performance. Companies’ sales-and-earnings guidance for the remainder of 2022 will also be a significant determinant of the level of investor wealth. Lately, the above market leaders have indicated that they will trim staffing and rein in capital spending. That suggests caution in making new commitments to the stock market is appropriate.
Inflation and short-term interest rate hikes, on the part of the Federal Reserve, are still filtering their way into the broader economy; actual company operating results will probably reflect this through the end of this year. Consumer, corporate, and investor sentiment is quite negative. More negative, we suspect, than is warranted, given relatively healthy consumer and business balance sheets, as well as sustained retail spending and capital improvements, overall.
The Dow Jones Industrial Average, Standard & Poor’s 500, and the NASDAQ have made further progress in their respective recoveries from the recent mid-June lows. Even so, though growth in inflation seems to be easing, the Fed appears intent on continuing to remove liquidity from the economy to contain goods and services prices. Stock valuations have become more reasonable, but might not yet have hit bottom. Investors should keep their portfolios weighted toward high-quality, dividend paying equities, for now.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
