This morning, we received some news on the U.S. economy. At 8:30, the Commerce Department reported that durable goods orders were unchanged in August, which was stronger than forecast, but still down from the outsized gain of 9.9% recorded in the previous month. We also learned from the Labor Department that initial jobless claims for the week ending September 23rd totaled 218,000, which was down 4,000 from the prior week’s revised tally, and still indicative of a healthy labor market, despite other labor market indicators suggesting some weakness. The recent softening labor market conditions have raised concerns about the overall health of the U.S. economy. The second and final revision to the second-quarter gross domestic product was unchanged at 3.0%, and the price index remained at 2.5%, the lowest level since the final quarter of last year.
Treasury yields rose a bit on the aforementioned economic news, while the equity futures, which were notably higher on some encouraging corporate news (more below) and reports of China’s stimulus plans for its economy, have held those gains following the economic releases. A report surfaced overnight that Beijing was considering a $142 billion capital injection into the country’s big banks.
As noted, there was some important news from Corporate America since the close of trading yesterday afternoon. Specifically, semiconductor company Micron Technology (MU) reported better-than-expected fiscal fourth-quarter adjusted earnings per share of $1.18, on a top-line beat and also raised its revenue outlook. Shares of Micron, which were up modestly yesterday, are trading sharply higher in pre-market action and are likely to have a positive impact on the semiconductor industry and overall technology sector when trading commences. The Micron results highlight the broad demand for semiconductor products amid the burgeoning AI revolution. It also should be noted that shares of Meta Platforms (META) finished at a record high yesterday after the technology behemoth unveiled its latest augmented reality (AR) glasses equipped with artificial intelligence (AI) capabilities. The NASDAQ futures were up more than 300 points this morning.
After last Thursday’s sharp move higher on the Federal Reserve’s decision to cut the federal funds rate by a half-point, to a range of 4.75% to 5.00%, the major averages have traded in a sideways fashion for most of the last four sessions. Perhaps, with the major indexes trading at or near record highs, investors were taking a bit of a breather the last few days ahead of some important inflation and employment data that are likely to determine if and by how much the central bank will lower the benchmark short-term interest rate at its next (November) Federal Open Market Committee (FOMC) meeting.
The big inflation report will come tomorrow morning, and it may have an impact on how the U.S. stock market finishes this week. An hour before Friday’s opening bell, the Labor Department will release the August personal income and spending report, which will include the latest Personal Consumption Expenditures (PCE) Price Index data. The PCE assessment of inflation most closely watched by the Federal Reserve, is expected to show a continued decline in headline and core (excludes food and energy components) inflation. The much-anticipated labor market data will come a week from tomorrow when the September employment figures are released.
In recent weeks, we have seen some broadening out of market participation, with interest picking up in some of the sectors that were out of favor earlier this year, including the financial and utilities groups. These sectors, along with housing, are likely to get a boost from the Federal Reserve’s decision to loosen the monetary reins last week for the first time in four years. The housing market, though, may not get as big a boost from the Fed’s decision as many market pundits may have initially anticipated. Since the Fed’s interest-rate cut on September 18th, the long end of the Treasury yield curve has steepened, with the rate on the 10-year note rising. This may put some upward pressure on mortgage rates and not provide homebuyers as much relief as expected with regard to loan financing terms. Speaking of homebuilding, KB Home’s (KBH) August-quarter release showed that home sales were a bit weaker than expected in July and August, though the homebuilder beat expectations at both the top and bottom lines. Nevertheless, the commentary from KB Home about softening selling conditions this summer, along with a nearly 5% month-to-month decline in new home sales during the month of August, weighed a bit on the homebuilding stocks during yesterday’s session.
Overall, the major equity averages are hovering at or near their record highs, and the U.S. stock market remains on pace for another positive month of trading in 2024. That said, there has been a pickup in volatility in the market in recent weeks, as the CBOE volatility Index (or VIX), also known as the “fear gauge,” is currently trading above its 200-day moving average. The age-old adage “don’t fight the Fed” is on display right now on Wall Street, but investors are still grappling with increased worries about the labor market and the overall health of the U.S. economy, escalating geopolitical tensions, particularly in the Middle East, and an upcoming Presidential election. Today’s news that Congress agreed on a bill to avert a government shutdown removed one possible worry for the market. Still, there clearly has been some movement into more defensive-oriented equity groups amid the stock market’s continued move higher. – William G. Ferguson
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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