Our quarter, which ran from July 29, 2022, through Nov. 30, 2022, started with a sell-off.
Inflation was the culprit, dogging Wall Street through our session as labor markets continued their strong showing and the Federal Reserve maintained its aggressive rate-raising, three-quarters of a point at a time.
Losses and gains marked the Business Alabama indices, but stock indexes ended in the black.
The Alabama Index added 48.56 points, or 2.10%, and closed at 2,360.71. Advancing issues squeaked past declining issues at an 8-to-7 count. The Comprehensive Index rose 21.53 points, or 1.08%, and ended at 2,021.69. However, declining issues bested advancing issues at a 28-to-26 count.
In August, a strong jobs report at the beginning of the month sent stocks on a downward spiral for most of the month. The Labor Department’s report of an additional 528,000 jobs in July shocked market-watchers. Economists were expecting 250,000 more jobs. Unemployment dropped to 3.5%, from 3.6%, in line with the five-decade low hit ahead of the pandemic. The jump in July jobs was followed by 315,000 more in August and 263,000 in September. The Job Openings and Labor Turnover Survey, or JOLTS, showed that August’s number of available jobs, at 10.1 million, dropped substantially from July’s figure of 11.2 million. In October, the JOLTS number was 10.3 million, down from September’s 10.7 million, but still high.
A slight mid-August upswing came from a Labor Department report showing that the Producer Price Index declined 0.5% in July. It was the first month-over-month drop in more than two years, and it was down from the 1% increase from May to June. There was no change in consumer inflation from June to July, which was the first unchanging inflationary trend in 25 consecutive months of upturns.
At the Fed’s annual symposium in Jackson Hole, Wyoming, fed chief Jerome Powell said central bankers might ease rates “at some point,” but not soon. Employers are adding an average of 470,000 jobs a month, and unemployment is 3.5%, in line with a before-pandemic 50-year low. Consumer spending grew by 1.5%, but housing construction plummeted 16.2% as mortgage rates rose.
September began with a broad rally as job growth led investors to speculate that the Fed might stop raising rates so aggressively. The rally was short-lived. When the month ended, the S&P 500 Index was down 9.3% for the month, the lowest since the pandemic hit in March, 2020.
The Federal Reserve, as widely expected, raised interest rates another three-quarters of a point, and Powell acknowledged that chances of a “soft landing” from upward-spiraling inflation seem less and less likely. The fuel for inflation now seems to be consumers’ steady purchasing and higher wages, rather than supply chain problems earlier. Inflation and rate hikes are taking a toll on the expansion of the economy. Three months ago, the Fed forecast growth this year at 1.7%; now it sees growth increasing at a sluggish 0.2%. A report from the Commerce Department showed that, despite inflation, spending increased by 0.4% in August after dropping 0.2% in July. Prices were up 6.2% from a year earlier.
September manufacturing in the U.S. slowed down; the Institute for Supply Management’s measure of manufacturing employment shrank for the fourth time in 2022.
The Conference Board reported that its October consumer confidence index slid to 102.5, following September’s 107.8 and August’s 103.6. It fell again in November, down to 100.2, the lowest since July.
The Commerce Department reported that August retail sales increased by 0.3%, from a decline of 0.4% in July. They remained the same from August to September, another indication that inflation is making the consumer more cautious. The Labor Department reported that wholesale inflation rose 0.4% in September from a month previous — a larger-than-expected increase — after two months of falling. The Producer Price Index was 8.5% ahead of a year ago. Inflation still dominates: the Commerce Department reported that a key measure tracked by the Federal Reserve was high, and that prices rose 6.2% in September compared to a year ago. It was the same year-over-year rate as in August. After two consecutive quarters of decline, the Commerce Department said that the gross domestic product in the U.S. grew at a 2.6% annual rate in the third quarter, better than expected.
As our quarter wound to a close, markets rallied on the last day after Fed chief Powell said the central bankers could ease up on their interest rate-raising pace, perhaps as soon as December. The October jobs report showed a still-expanding labor market, though the overall increase of 261,000 was down from September’s 325,000, showing that the pace of hiring might be cooling somewhat. Even so, hiring was stronger than economists expected. The unemployment rate for the month rose to 3.7% from September’s 3.5%.
“You have an economy that almost refuses to keel over, an economy that at its core is resilient, but at the same time inflation is easing and that is what the Fed wants and that’s obviously what the market wants,” said Quincy Krosby, chief equity strategist for LPL Financial.
Hibbett Sports was our top dollar and percentage gainer in the Alabama Index this quarter, despite missing estimates for its fiscal third quarter. HIBB posted net income of $25.6 million, or $1.94 per share, versus net income of $25.2 million, or $1.68 per share, in the year-ago quarter. Sales were $433.2 million, compared to last year’s 381.7 million. The consensus estimate from analysts was for earnings of $2.47 per share, and sales of $445.73 million. Analysts at Banc of America Securities boosted their rating on Hibbett to “buy” from “neutral,” with a price target of $75. HIBB jumped 19.74 points, or 42.07%, and closed at 66.66.
ServisFirst fell 9.63 points, or 11.27%, after missing analyst estimates on earnings. For its third quarter, SFBS posted earnings of $64 million, or $1.17 per share. Revenue was $119.8 million, 2.2% ahead of analysts’ expectations. Earnings per share was 4.6% below estimates. SFBS ended at 75.82, and was the top dollar loser.
Vulcan Materials came out ahead, adding 18 points even, or 10.89%. For its third quarter, VMC earned $1.78 per share, compared to year-ago earnings of $1.54 per share. Analysts polled by Zacks expected $1.71 per share. Revenue was $2.09 billion, versus last year’s $1.52 billion. Revenue was 4.45% ahead of estimates. VMC closed at 183.33 and was our second dollar gainer.
Margot Crabtree covers stocks for Business Alabama, under contract with her company, Trade Trends.
This article appears in the January 2023 issue of Business Alabama.
