It’s a grab bag of economic data this week in a period marked by Thanksgiving and a half day on Black Friday, when consumers and investors alike will try to take advantage of bargain hunting for Christmas gifts.
Whether the economy and Wall Street will be in a holiday mood is another question, as markets continue to be whipsawed by a Federal Reserve bent on crushing inflation and an economy that seems to flash yellow one day and green the next. One minute, investors bite on the possibility that inflation is ebbing and go on a tear, the next a Fed governor says the central bank has more work to do and a dark funk engulfs Wall Street.
“Fedspeak has been rattling markets all year, but it would be a mistake to view it as a fixed drag – Fed officials will sound more dovish as inflation eases,” BCA Research wrote in a Monday morning note.
The picture will become a little more complicated on Wednesday when the Fed releases the minutes of its last meeting when officials would have had a robust debate over monetary policy before approving a 75 basis point increase in interest rates (its fourth consecutive one).
But while the Fed insists it is data dependent, the minutes are a backward look and officials will be more focused on the consumer and pace of holiday shopping, as well as encouraging reports that prices of some goods are rising at a much lower rate than earlier in the year.
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And Wednesday’s report on new home sales should show how much the housing sector has slowed, although the data will be two months old. Sales slid by 10.9% in the last report and it is likely another drop occurred. Sales of all homes are being affected by mortgage rates that, despite a recent dip, are twice what they were a year ago.
That is being reflected in the moods of consumers, and the final reading from the University of Michigan’s consumer sentiment index will be out on Wednesday.
The combination of a dour consumer and a hawkish Fed could be a downer ahead of turkey day but the stock market will also be mindful of earnings reports and further layoffs from the tech sector. Major firms such as Meta, formerly Facebook, and Amazon have both recently announced layoffs in the thousands. Twitter is also laying off employees by the bucketful, but that is as much a function of Elon Musk’s behavior as it is the economy.
“Tighter monetary policy might be hurting early-stage startups more thanks to its discouragement of risky investment, but much of the broader industry anxiety stems from mature firms like Netflix, Meta, and Amazon not unprofitable startups,” Joseph Politano, a labor market analyst wrote tk in his Apricitas Economics newsletter on Saturday.
“Much of the failures seem to stem from difficulties in forecasting and managing demand amidst a rapidly changing world – – and tech companies got stuck at the forefront of the change,” he added. “Just as macroeconomic factors outside of tech companies’ control made them superstars at the start of COVID, macroeconomic factors outside their control arguably present their biggest threat now.”
In particular, both Meta and Twitter are embarked on new, and as yet unproven, business models. For other tech giants like Amazon, it is more a matter of overhiring during the pandemic as Americans shopped from their homes and the reversion to more normal patterns of daily behavior including a return to offices. It doesn’t help either that tech companies have been among the most highly valued of stocks.
Stock futures were slightly down ahead of trading on Monday, although Disney was up 9% following the replacement of CEO Bob Chapek by former CEO Bob Iger.