More signals of a slowing economy are raising Wall Street’s hopes for a “Goldilocks” outcome that’s just right for markets. That has stocks holding onto most of their strong gains for November so far, despite some unnerving profit forecasts from Walmart and Cisco Systems.
Quick Read
- Wall Street is optimistic about a “Goldilocks” scenario for the markets, with stocks holding onto November gains despite poor profit forecasts from Walmart and Cisco Systems.
- The S&P 500 edged up slightly, while the Dow Jones Industrial Average dropped slightly, and the Nasdaq composite remained virtually unchanged.
- This week’s stock market surge is driven by hopes that cooling inflation might lead the Federal Reserve to stop raising interest rates and potentially start cutting them by summer.
- Recent economic reports indicate a slowing economy, which could reduce inflationary pressures.
- The Fed aims to slow the economy enough to control inflation without causing a recession, and Thursday’s reports bolstered hopes for a softer approach on interest rates.
- The yield on the 10-year Treasury fell significantly, easing some pressure on financial markets but raising concerns about a potential recession.
- Walmart’s stock dropped after warning of reduced consumer spending and a weaker holiday profit forecast, despite beating quarterly expectations.
- Cisco Systems saw a decline due to a slowdown in new product orders and weaker earnings forecasts.
- Macy’s stock rose after reporting an unexpected profit.
- Investors might be overly optimistic about the Fed cutting rates, as the central bank plans to keep rates high to ensure inflation is under control.
- Recent data shows economic slowdown, including a slight increase in unemployment claims, weakening manufacturing in the mid-Atlantic region, and weaker U.S. industrial production in October.
- A slowdown could reduce fuel demand, with U.S. crude oil prices dropping significantly.
- Barclays strategists predict a global economic slowdown in 2024, followed by a recovery in 2025, with a relatively low peak in U.S. unemployment.
- International stock markets showed mixed responses, with Tokyo’s Nikkei 225 slipping after Japan reported modest export growth.
The Associated Press has the story:
Wall Street drifts as hopes for a just-right economy offset profit worries
Newslooks- NEW YORK (AP)
More signals of a slowing economy are raising Wall Street’s hopes for a “Goldilocks” outcome that’s just right for markets. That has stocks holding onto most of their strong gains for November so far, despite some unnerving profit forecasts from Walmart and Cisco Systems.
The S&P 500 was edging up by 0.1% in morning trading and remains comfortably on its way to a third straight winning week. The Dow Jones Industrial Average was down 50 points, or 0.1%, as of 10:30 a.m. Eastern time, and the Nasdaq composite was virtually unchanged.
Stocks have leaped this week, putting November on track to be their best in a year, on hopes that inflation is cooling enough to convince the Federal Reserve to halt its hikes to interest rates following its fusillade since last year. That’s in turn pushed expectations up for when the Fed could begin cutting rates, which can act like steroids for financial markets, in the summer.
Several more reports on Thursday indicated the economy is slowing. While the weaker-than-expected data are of course a signal the economy may be losing some of its strong momentum, for investors, they more importantly show that upward pressures on inflation may be easing.
The Fed has been trying to shepherd the economy along a tightrope, to slow enough to stamp out high inflation without falling into a recession. Thursday’s weaker-than-expected reports strengthened investors’ hopes that the Fed can go easier on interest rates, which triggered an immediate drop in Treasury yields.
The yield on the 10-year Treasury fell to 4.43% from 4.54% late Wednesday. Just last month, it was above 5% at its highest level since 2007 and raising worries on Wall Street as it undercut prices for stocks and other investments.
The drop in yields and signs of a slowing economy helped to release some of the pressure on financial markets, but they also keep fears bubbling about a possible recession down the line.
Walmart dropped 7.5% after it warned that shoppers began pulling back on spending late last month and gave a forecast for upcoming holiday profit that was weaker than analysts expected. The nation’s largest retailer’s stock fell even though it reported results for the latest quarter that edged past Wall Street’s expectations.
Strong spending by U.S. households amid a solid job market has been one of the most important reasons for the economy’s strength.
Cisco Systems tumbled 11.9% even though it also reported stronger results for the latest quarter than analysts estimated. The company saw a slowdown of new product orders last quarter, and gave forecasts for earnings this upcoming quarter and fiscal year that were weaker than analysts expected.
On the winning side of Wall Street was Macy’s, which jumped 7.7% after delivering a surprising profit for the latest quarter.
Some economists and analysts are warning investors that they’ve become overzealous in predicting when the Fed could begin cutting rates. Even if the Fed is done hiking its main interest rate, officials at the central bank have said they’ll likely keep it high for a while to ensure inflation is truly stamped out. The federal funds rate is above 5.25% and at its highest level since 2001.
But investors have been paying more attention to recent data reports showing a slowdown in the economy. On Thursday, one said that slightly more workers applied for unemployment benefits last week. The number is still low relative to history, but a softening in the job market could prevent the too-strong raises in workers’ pay that the Fed fears could trigger a vicious cycle that keeps inflation high.
Separate reports said that manufacturing in the mid-Atlantic region is unexpectedly weakening, while U.S. industrial production weakened more than expected in October.
A slowing economy would also mean softer growth in demand for fuel, and worries are already high about swelling inventories for crude oil. A barrel of benchmark U.S. crude tumbled 3.6% to $73.85 and touched its lowest price since July.
Brent crude, the international standard, dropped 3.7% to $78.16 per barrel.
Strategists at Barclays expect global economic growth to slow in 2024 before recovering in 2025, as inflation falls further.
That’s still a “benign bottom for a business cycle,” Ajay Rajadhyaksha and other analysts wrote in a report, and they expect the U.S. unemployment rate to top out at 4.3%, well below where it has in past recessions.
In stock markets abroad, Tokyo’s Nikkei 225 slipped 0.3% after Japan reported that its exports rose a meager 1.6% in October, down from September’s growth.
Indexes were mixed across the rest of Asia and Europe.
