Key points to remember:
- Stocks live up to their roller coaster reputation
- Is the service sector ready to take off?
- Transportation stocks struggle to get back on the road
Wall Street appears to be living up to its reputation as a rollercoaster as stock futures point to a weaker open after yesterday’s rally. Inflation continues to be a concern for investors. European markets were rocked by European natural gas prices which soared 13% overnight. Rising prices helped spark a sell-off on Germany’s DAX (DAX:DBI) and London’s FTSE (FTSEMIB:FTSE).
ADP’s nonfarm payrolls were better than expected, but are unlikely to change analysts’ projections for Friday’s payrolls report. However, the positive news helped to reduce some of the losses in the futures markets ahead of the open. The travel and leisure sectors were among the biggest job gainers.
The employment news is another positive sign for the service sector. Yesterday, the non-manufacturing ISM PMI report showed a better than expected rise. The economy has benefited from increased attention from consumers in the services sector. Focusing on services rather than products should be an indispensable aid in supplying lines that are struggling with bottlenecks and stoppages.
Stocks rallied on Tuesday, recouping most of Monday’s losses. The Nasdaq Composite ($COMP) fell about 2% before closing up 1.25%. The index failed to break Monday’s high, which some investors see as a potential signal that the sell-off is not over yet. Tech stocks were able to rebound despite the rise in the 10-year Treasury yield (TNX). However, financial stocks gained on the day, with the Financial Select Sector Index ($IXM) rising more than 1.7% on the rising tide of yields.
Despite congressional hearing around Facebook
The rise in yields was partly due to higher oil prices. Crude oil (/CL) rose another 1.88% on Tuesday, setting a new 52-week high. With so much attention on oil prices, Wednesday’s Crude Oil Inventories report may be the focus of attention.
Rising oil and gas prices infect food prices. The Chinese energy crisis makes the autumn harvest more difficult. Bloomberg reports that Beijing is working to secure energy supplies to help deal with power shortages. Corn, soybeans, peanuts and cotton are at risk if the harvest does not meet production targets.
Airlines See more turbulence
Rising oil prices are one of the highest input costs cited by Goldman Sachs
Adobe Analytics found that flight bookings fell 24% from July to August and Thanksgiving flights were down 18% from 2019. However, two weeks ago US travel authorities announced that they would lift their foreign travel ban in November. German airline Lufthansa (DLAKY) reported that, and within a week it saw an increase in bookings.
Final destinations: Once you’ve flown to your location, what now? Briefing.com reported that many travel and leisure companies are struggling with labor shortages. MGM
Indeed, some stations have increased their forecasts. Entertainment Caesars
Other stations are counting on an increased need for corporate meetings due to a dispersed workforce. Global Apollo Management
From the Beverage Cart: Constellation Brands beer and wine maker
The S&P Food and Beverage Select Industry Index ($SPSIFB) is down 7% from its June highs, but remained relatively flat throughout the previous market downturn. Many of these stocks are known for their stability and relatively high dividend yields, which can make them attractive to investors during downturns.
Take the road : If you’re one of those people who prefers the cup holder in your car, you’re used to seeing big tractor-trailers on the highways. Tight supply chains have increased the need for large rigs, but they also have supply chain issues. PACCAR
The Dow Jones Transportation Average ($DJT) has seen its growth stunted and has fallen more than 9% since its peak in May. However, the problem is not the lack of demand but the inability to meet it. Strong demand for transport sector services could mean that this group could hit the road again.
TD Ameritrade® Commentary for educational purposes only. SIPC member.