What to Monitor in Keep Marketplace in Part Two

Investors have plenty to track as they consider the road ahead for U.S. stocks, including the presidential election, a review of company profits and a new round of financial information.

However, the issue of interest will largely remain on the Federal Reserve and the likelihood and timing of an interest rate cut, which investors are expecting to come in the second half of 2024. Charge-reduction expectations have helped fuel an 18% year-to-date gain for the S&P 500 through Friday.

On the other hand, some analysts warn that low rates won’t manage stock gains evenly.

Traditionally, Fed cuts cause rallies to fizzle out.

The S&P 500 soared in the first half of the year, with gains of more than 24% through 2023. Traders’ hopes that signs of easing inflation would allow the Fed to cut rates, however, capped those gains, at multi-decade highs.

However, the Fed has not yet escalated the issue, and if it does, stocks may face a more difficult climb.

The Fed has launched seven rate-hike campaigns since 1989, including the latest one. Over the past six, the S&P 500 has gained an average of 15.5% between the last rise and the next first cut, a period that averaged about 9 months. Within about six months of the Fed starting cutting rates, the benchmark index’s returns fell to just 5.4%.

“Most of the progress comes before that first rate cut,” Sam Stovall, chief investment strategist at CFRA Analysis, said in a latest call highlighting the company’s outlook. “Prepare yourself for more volatility in the second half.”

Is a fee cut coming around the corner?

U.S. stock indexes, including the S&P 500, once again hit all-time highs last day, even if they have cooled more recently, after the nearest June inflation data showed consumer prices falling for the first time in two years. Are. This followed the expansion section’s record that jobs growth slowed in June, with unemployment reaching 4.1%, the best degree since November 2021.

Basic financial information has reinforced expectations that the Fed may soon reduce rates. While some investors think the fight to get inflation back toward the Fed’s 2% target is far from over, most investors expect central reserve cuts to begin in September, according to CME’s FedWatch system. Have been.

The Fed hopes that it can actually bring interest rates down to a level that will reduce inflation without derailing the economy.

“The latest data shows that we have experienced a significant cooling of the labor market,” Fed Chairman Jerome Powell said in testimony before Congress recently. “We are well aware that we now face two-pronged risks. …We’re committed to balancing them as much as possible.”

Market breadth, among alternative keep-marketplace topics to track election-indistinguishable volatility.

Alternative ultimatum indicators also exist for stocks. Here are some listed.

market breadth: Since the beginning of May, the S&P 500 has risen, in line with Bespoke Investments, even as the cumulative selection of advancing stocks outweighed that of declining stocks. This marks a departure from the current year, during which those metrics closely tracked each opportunity.

Led by AI-chip powerhouse Nvidia (NVDA), a small team of generation stocks between Apple (AAPL) and Microsoft (MSFT) have accounted for the majority of the S&P 500’s acquisitions. The equal-weighted version of the index complicated only 4.1% in the first phase.

“The lead in the U.S. (stock market) is uncomfortably narrow,” said Rob Botard, managing director of Houston-based Crossmark International Investments.

US elections: Meanwhile, as Stovall said, volatility could increase, especially as the US elections approach. Some research suggests that stock-market volatility can increase by about 20% in the same few weeks following an election.

shopkeeper spirit: US consumer sentiment fell to a seven-month low in June. Some corporations have indicated growing “extended” customers. PepsiCo (PEP) CEO Ramon Laguarta recently reported a “challenging” customer looking for value.

“Consumers are becoming a little more cautious,” Stovall noted.

Flexible Income Loan Assistance

However, Stovall and many others do not expect the US economy to fall into recession this year or in the coming year.

The Atlanta Fed estimates US annualized gross domestic product (GDP) in the second quarter will be 2% higher than 1.4% in the first quarter (the US government will cut its first GDP estimate for the quarter in late July). Even amid that slightly flat, slow expansion, however, the company’s profits have continued to grow.

The second quarter profit season started with a bang recently. FactSet estimates second-quarter profit for S&P 500 companies will be 8.8% year-over-year, up from 6% in the first quarter. If true, it would mark the largest year-over-year increase since the first quarter of 2022, just ahead of the start of the Fed’s rate hikes.

Bottard noted, “What is surprising is how consistently income has grown.”

Scorching a Comfortable Touchdown

According to JPMorgan analysts, markets that were strong at the beginning of the year tend to remain strong. The S&P 500 gained 11% in the first 100 trading days of the year; Since 1950, when the index rose 10% or more in that future body, it has declined an average of 9% for the rest of the year.

Jurien Timmer, director of international macro for Constancy Control & Analysis, said in the company’s midyear stock outlook that the trend of slightly stronger returns for the fourth year of the presidential cycle bodes well for the remainder of the year – especially as profit estimates continue to emerge. Are.

“We’re watching this pattern very closely for the fourth year,” Timmer noted. “If we continue to do so, it could suggest that the bull market could continue for the remainder of this year.”

However, most analysts remain preoccupied with interest rates. Lisa Shalett, chief investment officer of wealth control for Morgan Stanley, said the latest surge in bond turnover, which falls as costs, suggests high confidence that the Fed will reach its desired target, called a comfortable touchdown. . ,

This may increase some out-of-favor inventory sectors. Traders were given a semblance of that sentiment the previous day when basic Shopper Worth Index (CPI) information contributed to a pullback in some generation stocks and power within the blue-chip Dow.

“If a soft landing is successful, as we believe it will be, then stock-market gains should be more broad-based, with quality cyclicals and the market bullish in defensive ways,” Shalett noted in an updated note. There is a possibility of coming.”