US Business Activity Drops for Fifth Straight Month, but Stocks Still Pop

US business activity continues to drop, but investors aren't worried. The stock market popped again this morning amid some mixed signals from the broader economy.

According to a recent report, US business activity fell in November for the fifth consecutive month of 2022. This is in stark contrast to rising stock prices and general investor optimism. Notably, the week before Thanksgiving is usually great for the stock market. Investors tend to get into a good mood ahead of the holiday season. 

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Still, the elephant in the room remains the Federal Reserve’s quantitative tightening policy. The central bank has implemented numerous interest rate hikes to keep the value of the dollar high relative to other currencies. This has resulted in some concerns over a looming recession, and, according to recent data, has continued to push business activity lower than it usually would be this time of year. 

Read More: Check out the latest Mind Your Dollars stock and financial news.

Shareholders are also keeping a close eye on the tech sector. Companies like Snap and Meta have laid off large swaths of their workforce, which has played havoc with the Nasdaq Composite Index and spooked some bearish investors out of the tech industry. Some analysts have now begun to note that Alphabet, Google’s parent company, has somehow avoided these layoffs–for now. The question is whether Google can navigate the tricky tech landscape without implementing mass layoffs.

Stock Market Pops

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The three major indexes started the day before Thanksgiving by jumping above their Tuesday closing values. The S&P 500 started the day by jumping 0.5%, and the Dow Jones shot up 0.3%. Notably, the largest gains, once again, belonged to the tech-heavy Nasdaq, which posted a 1% gain after the opening bell. This is all good news for most investors, though some are now warily eyeing the sinking price of oil.

OPEC is reportedly considering increasing its output of crude to help address higher demand throughout the holiday season. This is great news for consumers, many of whom have been paying higher prices for gas and groceries throughout 2022. However, it’s painful for energy investors looking to advance their market positions. Wednesday will be a busy day for analysts, too, as several key economic indicators will be published before Thanksgiving.

Wednesday will see new data on everything from jobless claims to the housing market. This is a chaotic period for analysts because the market will be closed on Thanksgiving and will only be open for half a day on Friday before opening again for a full week on Monday. As such, any data from today’s reports could get lost in the shuffle between the holiday-shortened weeks at the end of November and December.

US Business Activity Falls

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US business activity fell for the fifth straight month in November, according to a report from S&P Global. The firm’s U.S. Composite PMI Output Index, which offers readings on the manufacturing and services sectors, hit a new low of 46.3 in November. That’s markedly lower than the 48.2 it notched last month.

“Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions – notably higher borrowing costs – and weakened demand across both home and export markets,” writes S&P Global Market Intelligence’s chief business economist, Chris Williamson. Those higher costs are pressuring consumers and producers alike, pushing demand down and causing unusual bottlenecks across the broader economy. 

Still, there are some indications that inflation might be finally abating after months of Fed policy shifts. Businesses seem to be paying lower prices for raw materials in November, and the looming consumer price index in December could shed more light on the dollar’s performance throughout the month. If inflation falls for the second straight month in November, the Fed could finally start easing up on its interest rate hikes.

Google’s Lack of Layoffs

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Alphabet stands alone right now as one of the very few large-cap tech companies that has avoided laying off wide swaths of employees. Some analysts have begun to wonder how long it can keep this up. Alphabet’s leadership has stated it needs to tighten its focus to make the company 20% more efficient before the end of the year.

One step it took in that direction was shuttering the ill-fated cloud gaming platform Stadia and issuing refunds to customers for games they purchased through the service. The company’s advertising-based search engine business has also slowed throughout 2022, pressuring Alphabet to find new ways to make money. CEO Sundar Pichai now faces some pressing questions about the company’s headcount and why it would slow down now after years of unparalleled growth.

Alphabet’s own employees have grown concerned about their job security. One highly-rated question on the company’s internal question system, Dory, underlines these fears. “It appears that we added 36k full-time roles [year-over-year, increasing headcount by about 24%,” the question reads. “Many teams feel like they are losing headcount, not gaining it. Where did this headcount go? In hindsight, and given concerns around productivity, should we have hired so rapidly?”

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