Summer is a time to sit back and enjoy the sun. The stock market could come up with this idea.
It has undoubtedly been difficult to feel comfortable in recent months as inflation continues to weigh on households and businesses, headlines of layoffs at large companies have workers fearing for their job security and fears of a recession are high. In the midst of these challenges, a lot of good news got lost.
After months of haggling, Congress agreed on the debt ceiling, avoiding a default that would have roiled financial markets. Elsewhere, the Labor Department said the economy added 339,000 jobs in May, well above the 186,500 jobs forecast by analysts.
And for once, good news was good news, as the stock market no longer worried about how the Federal Reserve might react, thanks to an unemployment rate that rose to 3.7% from 3.4% and slowing wage growth.
It was enough for a market party – and this time everyone was invited. The
S&P 500 index
rose 1.8% for the week, while the
Dow Jones Industrial Average
And
Nasdaq Composite
both up 2%.
Even better, all sectors of the market are participating in the recovery, a change from the first five months of the year, when the S&P 500 was up 9%, even though eight of the market’s 11 sectors, including energy and utilities, fell. That dynamic changed after the House of Representatives passed the debt deal Wednesday night, allowing for easy passage in the Senate.
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On Thursday, data from the Institute for Supply Management showed that production contracted for the seventh straight month, but the prices manufacturers had to pay for their inputs had fallen.
“Thursday’s economic data was positive for stocks and bonds as it showed a sudden drop in some inflation measures while growth remained broadly stable, and that’s essentially the Goldilocks economic scenario for stocks, at least initially,” said Tom Essaye, founder and Author of The Sevens Report, wrote on Friday.
Given the good, but not too good, economic data, Wall Street is confident that the Fed’s FOMC will decide to hike rates at its meeting later this month. Few expect a full reversal, but with cooling inflation and the recent bank turmoil that has caused the sector to restrict lending, the Fed may wish to wait out this round of rate hikes to allow its efforts to continue to impact the economy .
One might also want to see if the signs of stress among lower-income consumers, evident in Dollar General’s disappointing earnings, are reflected
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(Ticker: DG) and rising credit card delinquencies in the New York Fed’s consumer credit data are turning into something worse. Wall Street remains largely expecting the Fed to pause, with a 68% chance of no rate hike happening, according to the CME FedWatch tool last Friday. And with whom should we argue against this?
If the Fed is ready to relax, perhaps investors should too.
write to Carleton English at [email protected]
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