Bullish Stock Market Window To Continue For Now

The bullish window opened up last week as the FOMC Minutes were somewhat more balanced with regard to growth and inflation than were Powell's previous comments.  In addition, almost all the US economic data kept alive the possibility that inflation could be brought under control without recession.  This week's US economic data are expected to sustain this possibility and thus keep open the bullish window for stocks.

Consensus looks for the Mfg ISM to slip to 54.5 in May from 55.4 in April.  This would continue its modest downward trend so far this year, consistent with a slowdown but not recession.  The 50+ level signals growth, not a pullback in manufacturing activity.  Note that not all evidence from other manufacturing surveys point to a decline in the Mfg ISM, so an uptick can't be ruled out -- particularly since the chip shortage constraints in the motor vehicle industry appear to be easing.  At some point, presumably, a restocking of defense-related equipment and ammunition will boost manufacturing output, as well.

The May Employment Report also is expected to show a moderation in job growth together with a steady 3.6% Unemployment Rate.  A steady Unemployment Rate would be consistent with near-trend GDP growth.  Consensus sees May Payroll slowing to a still-strong +320k m/m, versus +428k in April.  The Unemployment Claims and other evidence agree with a slowdown in May Payrolls.   Consensus expects +0.4% m/m for Average Hourly Earnings, which would be up from +0.3% in April but in line with the recent trend.  It would suggest that wage inflation is contained so far.

Anecdotal evidence suggests some companies are eliminating job openings rather than reducing payrolls in the face of Fed tightening and downside risk to the outlook.  If this is broad-based, it would be a welcome development for the Fed, which hopes to reduce excess demand for labor this way rather than by increasing unemployment.  The Fed's Beige Book or the April Job Openings Report, both due Wednesday, may pick up this downward shift in labor demand.