This morning, the reports on the economy are rather light, with only two releases of significance hitting the newswires. At 8:30 A.M. (EDT), we learned that initial unemployment claims for the week ending August 17th totaled 232,000. That figure was slightly above the revised previous week’s tally of 228,000, but still suggestive of a tight labor market. However, overall labor market conditions may be weaker than previous forecasts have shown, as the Bureau of Labor Statistics yesterday reported that the U.S. economy employed 818,000 fewer people than originally reported as of March, 2024. This report, which included a sharp downward revision in the professional and business services industry, may put more pressure on the Federal Reserve to pivot on the interest-rate front at next month’s Federal Open Market Committee (FOMC) meeting.
Later today, at 10:00 A.M. (EDT), we will get data on existing home sales for the month of July. It is another report that is expected to be closely watched by the Federal Reserve for signs about the health of the U.S. economy. Last week, we learned that residential construction declined sharply in July, an indication that higher lending rates are having an impact on housing demand and ultimately homebuilder sentiment. This bears watching, as residential construction is one of the key contributors to the nation’s gross domestic product (GDP). The equity futures are presaging a slightly higher opening for the U.S. stock market when trading kicks off stateside.
Speaking of the Federal Reserve, the minutes from its July FOMC meeting were released yesterday afternoon. In general, they also did not change the building narrative on Wall Street that the central bank will begin reducing interest rates at next month’s monetary policy meeting. The readout showed that some central bank leaders wanted to cut the federal funds rate at the July meeting, as there was growing confidence that inflation was moving toward the Fed’s desired rate of 2%. A better balance between inflation and employment may soon set the stage for a loosening of the monetary reins. This could potentially be a good backdrop for stocks if the rate reductions are in response to inflation easing, not a notable weakening in economic growth.
Overall, the major averages have thus far traded in a tight band around the neutral line this week. After a volatile few weeks of trading to start August, investors appear hesitant to make a big move this week ahead of tomorrow’s scheduled press conference from Federal Reserve Chairman Jerome Powell, which has the potential to move the market. His speech will likely provide more clues about Fed’s stance on interest rates ahead of next month’s FOMC meeting. The consensus is that the central bank will pivot on the monetary policy front at that meeting and reduce the federal funds rate by a quarter-point. This narrative, along with some favorable quarterly reports from a couple of major retailers, has provided some support for stocks. Yesterday, the Dow Jones Industrial Average, NASDAQ Composite, and the S&P 500 produced gains of 0.1%, 0.6%, and 0.4%, respectively.
The latest round of quarterly results from the retailers continue the headline news from Corporate America. The big report this week came from mass merchandiser Target (TGT), and the market reacted favorably to its results and guidance, which both exceeded forecasts. The Target report, much like last week’s results from retailing behemoth Walmart Inc. (WMT), gave a boost to many of the retailing stocks, most notably those of the discount outlets. Conversely, department store operator Macy’s (M) posted quarterly results that did not impress Wall Street and the stock was punished by the market yesterday. Since yesterday’s closing bell we heard from a few more retailers. Of note, Urban Outfitters (URBN) beat sales forecasts, but a closer look showed that the retailer reported a decline in same-store sales during the latest period, and its stock is looking at a lower opening today. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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