Maybe We’ll Get That Soft Landing After All, Stock Market Suggests

The bad-news-is-good-news phenomenon appeared again Tuesday, as U.S. job openings dropped below nine million for the first time since early 2021 and consumer confidence reversed its summer advance.

To be sure, the reports were not necessarily bad per se—more like a brake tap than a screeching halt. Still, an economy with a decreased tempo sounded good to Wall Street, as it might convince Federal Reserve officials to halt their rate-increase campaign. The S&P 500 jumped 1.45% for the day, on hopes that the economy will avoid a recession and that the Fed need not tighten any more. In other words, a soft landing.

The jobs news “was an answer to Fed prayers,” commented Ronald Temple, chief market strategist at Lazard. “At the same time, low, stable layoff rates imply rising odds of a soft landing in the absence of wide-scale workforce reductions.”

The report, from the U.S. Labor Department, showed signs of cooling in the nation’s buoyant employment market. The labor market still is tight, with 1.51 job openings for every unemployed person in August, down slightly from 1.54 in June, according to the Job Openings and Labor Turnover Survey. But the JOLTS report also found that job openings had slid by 38,000 to 8.83 million in July. Economists in a Reuters survey had predicted 9.46 million job openings.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Meanwhile, after rising in June and July, the Conference Board’s Consumer Confidence Index erased those gains in August. The research group’s chief economist, Dana Peterson, indicated in a news release that the pullback seemed mostly linked to still-high levels of groceries and gasoline.

The slower employment situation should calm Fed fears that burgeoning wages will keep inflation high, per Bill Adams, chief economist for Comerica Bank. In his view, “The Fed is concerned that rapid wage growth might stoke inflationary pressures in 2024, but wage growth is likely to slow in coming months with workers seeing fewer opportunities to raise wages by switching jobs.”

The odds are strong that the Fed will stand pat at its September 20 policymaking meeting, by the reckoning of the CME Group futures market: 86.5% believe that the central bank’s benchmark rate will stay in its current (5.25% to 5.5%) range.

The odds also continue to favor no change for the balance of the year, CME traders indicate. “The Fed reiterated its commitment to be data-dependent and with reports like this, the Fed can most likely keep rates unchanged in September,” Jeffrey Roach, chief economist for LPL Financial, noted in a statement.

The jobs and confidence reports are the opening act for a week full of important economic reports—the Fed’s favorite inflation gauge, the Personal Consumption Index, and the August payrolls data. Expectations are that both will dip, and that a happy stock market will keep rising if they do.

Tags: Conference Board, consumer confidence, Consumer Confidence Index, Federal Reserve, future market, Inflation, job openings, JOLTS, Labor department, S&P 500, Stock Market

Initial public offerings, ailing since the stock market’s breathtaking 2022 plunge, look to finally be getting their mojo back —with a much-anticipated list of companies waiting to go public. It’s a testament that last year’s volatility and risk-off mindset are gradually fading away.

Garnering the most buzz among recent IPO filings is that of Instacart, the largest online grocery delivery business by sales. The company is expected to go public next month. Other much-watched September launches are those of British chip designer Arm and e-commerce marketing platform Klaviyo. And 400 other private tech companies are eyeing public offerings, per EquityZen, an online marketplace for privately held stock.

None of this is to say that a return to a banner IPO year, on the order of 2021, is in the offing, an analysis by research firm Morningstar cautioned. There is a lack of the “frenzied demand” that existed two years ago, the analysts observed.

Investor sentiment has changed for the better, however. As the report noted, “Before the bear market, investors were much more willing to pile into money-losing companies in search of the next growth-stock winner. In the current environment, many investors are focusing on larger, more established cash-generating names.”

For more stories like this, sign up for the CIO Alert newsletter. 

That is why a number of companies are gearing up for an offering. “Because of the strength of the returns that we’ve seen this year, more and more deals are exploring going public, either in the fall or 2024,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital, an investment bank specializing in initial offerings, in a Morningstar interview.

In 2021, U.S. IPOs raised $142 billion for 397 offerings, according to Renaissance. That count fell to $7.8 billion for 71 deals last year. While this year’s first quarter was disheartening (29 IPOs, raising $2.3 billion), the second period showed more promise: Although the deal count was slightly less, at 23, larger companies came public, so $6.6 billion was raised.

The largest of all was consumer health firm Kenvue, a May spinoff from Johnson & Johnson; it went public for $4.4 billion. Kenvue has since joined the S&P 500. After the IPO, the shares have dipped 15%, which suggests it may have been priced higher than warranted at the outset.

Another celebrated recent offering, that of Cava Group, which raised $318 million, gave an initially robust market performance since its June launch, with its price doubling. But then Cava fell back to its offering price. In all, nine IPOs in the second quarter raised $100 million or more.

The post-offering market performance of these IPOs seems to demonstrate that the recovery in fledgling public companies is sober-minded. Nonetheless, more and more privately held companies are seeking public listings, and that should restore the IPO market to something of its former glory.