When Bad News Is Good News

Stocks opened lower this morning, but quickly turned around. At the moment, the Dow is up 130 points and the S&P 500 is up .9%. Several sectors are leading the charge: materials, consumer discretionary, communications and technology. The VIX Index—measuring fear among traders—sank below 25. Commodities are catching a bid. Copper surged 5% after China announced new economic stimulus and lifted Shanghai’s Covid lock-down restrictions. And strangely enough oil is up 1.3% after OPEC agreed to increase oil output in July and August. Finally, the bond market is largely unchanged today after a 3-day selloff.

We got some less than stellar economic data this morning. Payroll processing company Paychex says the US economy generated 128,000 new private sector jobs in May. That’s far below the 300,000 expected by economists. In addition, Paychex downwardly revised April’s job tally to 202,000 from 247,000. The report suggests a marked slowing in hiring activity across most industries. Separately, factory orders rose .3% in April vs. .7% expected. And March order growth was revised lower as well. Perversely, slower hiring and business activity could be exactly what the doctor (Federal Reserve) ordered. The Fed’s stated policy goal is to slow the economy in order to reduce inflation. And any sign that the policy is working could mean fewer interest rate hikes ahead. Remember, the biggest fear among investors is that inflation could remain stubbornly high, forcing the Fed to raise rates until it pushes the economy into recession.

Microsoft (MSFT) issued a profit warning this morning and the stock is down 1.5%. With nearly a month left in the quarter, management cautioned investors that a strong US dollar is hurting sales and profits overseas. Current quarter revenue & profits are now expected to be 1% below previous guidance. That may not sound like much—and it isn’t—but in this market investors have no patience.

Hewlett-Packard Enterprise (HPE) reported mixed quarterly results and the stock is down 6% this morning. Revenue was flat with year-ago levels and profits fell. The CEO stressed that customer demand is strong (orders up 20%) and backlogs haven’t yet peaked. But electronic component availability and China’s Covid lock-downs wreaked havoc on the business. In addition, HPE absorbed the one-time impact of shutting down its operations in Russia. Most Wall Street analysts say investors should look past these issues with the expectation that they will fade away the course of the year.