Stock market indexes look to open down this morning, as Federal Reserve officials reiterate that more rate hikes are needed to rein in inflation.
Through Thursday’s close, the Dow Jones Industrial Average, Standard & Poor’s 500, and the NASDAQ essentially turned in flat performances. The indexes may fall into the red for the full week. In recent days, investors preferred conservative blue-chip stocks over riskier growth issues. There were a number of economic data puts and takes this week, affecting share prices. In the housing sector, the number of building permits slipped, existing home sales dropped, and housing starts slowed for the months of July. The August home builders’ index showed a softening of sentiment.
In other data, the Philadelphia Fed’s manufacturing index indicated a return to growth in August, while the data at the Empire State Fed reflected a substantial contraction. Last month’s domestic industrial production index and the capacity utilization rate measure both displayed improvements. Business inventories for June sustained a moderate rate of expansion. Initial jobless claims and continuing jobless claims were more favorable in their most recent respective weekly reports. Leading economic indicators, meanwhile, stayed on a negative track. Lastly, retail sales were flat, month to month, in July; excluding autos, they were up modestly. No significant economic news is scheduled for today.
As the latest data suggest, there’s still a fair amount of uncertainty in the economy. Next week, in Jackson Hole, Wyoming, the Federal Reserve Bank of Kansas City will host its annual economic symposium for central bankers, policymakers, academics, and economists from around the world. This event should shed light on the international economic situation. The Federal Reserve will meet in late September to decide on the magnitude of its next likely interest-rate hike. Wall Street appears to be rooting for a more modest hike in short-term interest rates of one-half of a percentage point, compared to the July increase of three-quarters. An increase matching the last one cannot be ruled out. The Fed will have a new round of inflation readings to consider before making its move.
In yesterday’s trading, the domestic stock indexes posted fractional gains. Energy and technology issues provided support to the broader market averages, while the real estate, health care, communications, and consumer discretionary sectors were a visible drag on share prices. ON Semiconductor (ON) advanced an impressive 7.3%, Cisco Systems (CSCO) rose 5.8%, and Schlumberger (SLB) gained 4.9% in value, while Broadcom (AVGO) and Marvell Technology (MRVL) posted share-price improvements of 3.7% and 3.6%, respectively. Some notable decliners included Walgreens Boots Alliance (WBA), off by 5.3%; Moderna (MRNA), down 5.1%; Ventas (VTR), losing 2.9%; and Verizon Comm. (VZ), shedding 2.5%.
Stocks have surged higher after hitting lows in mid-June. Wall Street pundits are arguing whether we are experiencing a bear market bounce or a lasting recovery in equities. The Fed seems committed to lifting interest rates through the end of this year, and it plans to accelerate quantitative tightening this fall, by letting bond holdings on its balance sheet mature without any fully offsetting replacements. Inflation might ease in the coming months, but the prices of many goods and services will probably stay elevated for quite some time. Other economic disruptions could materialize from the slowdown in the U.S. housing sector, moderating economic expansion in China, lingering supply-chain constraints, the ongoing Russia-Ukraine conflict, and a possible escalation of threats to Taiwan’s sovereignty. Solid corporate and consumer balance sheets, decent company earnings, strong employment, and rising wages, however, are meaningful counterbalances. All considered, we continue to recommend that investors focus on the high-quality stocks of industry leaders.
– David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
