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The s
In May, the S-index
Investors expect the market to be able to continue its bullish momentum in June as S
The two main market drivers that have made headlines over the past year will remain ahead of the curve in June: inflation and interest rates.
The Customer Value Index rose 3. 4% year-over-year in April, below the inflation peak of 9. 1% in 2022 but still well above the Federal Reserve’s long-term target of 2%.
In a speech to the Foreign Bankers Association in May, Federal Reserve Chair Jerome Powell said the Federal Open Market Committee (FOMC) never foresaw that the path to 2% inflation would be easy.
However, Powell admitted that recent inflation numbers have been “higher than anticipated” and that the Fed will have to be patient.
“I think it’s about keeping politics at the current pace for longer than we thought,” he said.
The FOMC has maintained its diversity target for the federal budget interest rate between 5. 25% and 5. 5% since July 2023, its diversity target since 2001.
In his speech, Powell said that it was unlikely that the Federal Reserve would have to raise interest rates further, but that the way forward would instead be to continue to keep interest rates at current levels for an extended period.
Bill Adams, chief economist at Comerica Bank, believes that the recently revised estimate of U. S. gross domestic product (GDP) expansion in the first quarter of just 1. 3% suggests that the Federal Reserve’s restrictive financial policy measures are having a definite effect on the economy. .
“The downward revision of the economic expansion, as well as the downward revisions of inflation, make it a little more likely that the Federal Reserve will begin cutting interest rates through September,” Adams said.
He says high interest rates are weighing on customers’ spending on durable goods and multifamily residential investments.
“A colder economy limits corporations’ ability to raise prices, which will slow inflation in the second half of the year,” Adams said.
The bond market is pricing in a 98. 7% chance that the Federal Reserve will regain its current target rate diversity of 5. 25% to 5. 5% at its June meeting, according to the CME Group.
For more than a year, economists and investors have feared that high interest rates and tight financial policies could tip the U. S. economy into recession. Consumers look healthy for now, but the Federal Reserve is reaching a critical point in its fight against inflation.
The coming months could determine whether the FOMC will be able to guarantee the so-called comfortable landing for the U. S. economy without pushing it into a recession.
The yield curve on U. S. Treasuries has inverted since mid-2022, a traditionally strong recession indicator. The New York Federal Reserve’s recession probability style suggests that there is still a 50% chance of a U. S. recession occurring in the next 12 months.
The U. S. hard-labor market has weakened, but symptoms of an impending recession are still emerging. The Ministry of Labor reported:
A slowdown in the hard-work market, a slowdown in economic growth, and a slowdown in customer spending may seem like a worrisome combination for investors, but those signs may also simply be positive news for the Federal Reserve as inflation could also rise soon. again a stable downward trend.
Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, says investors shouldn’t focus too much on the interest rate outlook or lose sight of what matters: the economy.
“For a long time we have believed that the most important thing is the economy, and not reducing interest rates only to inventory prices,” Zaccarelli said.
He expects the FOMC not to cut interest rates for most, if not all, of 2024, but says a delay in rate cuts may not derail the market’s bullish rally.
“All things being equal, the economy will most likely stay out of a recession if interest rates are lower than they are now, but at the end of the day, it is economic expansion – and the pursuit of corporate profits – that is the most important key in the medium- to long-term future. even if asset costs may temporarily increase thanks to the undeniable fall in interest rates,” says Zaccarelli.
High interest rates increase loan prices for consumers and businesses, weighing on economic expansion and profitability.
Fortunately, the S
Some market sectors are experiencing a bigger earnings rebound than others:
Ahead of the quarterly reports, analysts ask:
Nicholas Colas, co-founder of DataTrek Research, says the stock market rally of 2024 is about this year alone, but also about the outlook for 2025 and 2026.
“Markets are confident that large-cap U. S. corporations will revel in many years (not just one) of improved earnings. Earnings for 2024 want to be higher than last year’s, and there is no macro decline (economic expansion, geopolitical) to derail earnings expansion in 2025 and 2026,” says Colas.
While the economic outlook remains uncertain, investors have an explanation for why to be positive in June and beyond.
Since 1950, the S-index
The s
Investors concerned about the possibility of a slowdown in the U. S. economy or election-related volatility may take a more defensive approach in the market and increase their monetary flexibility by reducing their exposure to equities and expanding their liquidity.
Investors can already earn 5% or more on online savings accounts through June, and those interest rates will likely remain the highest for at least the next few months.
Value stocks have traditionally outperformed expansion stocks when interest rates are high, but that trend reversed in 2024 as investors anticipate a shift from the Fed toward rate cuts in the second half of the year. The Vanguard Value ETF (VTV) has generated an overall pullback. of just 6. 3% year-to-date, while the Vanguard Growth ETF (VUG) has generated an overall pullback of 14. 7%.
The communications sector has been the most productive active sector in the S
Adam Turnquist, lead technical strategist at LPL Financial, says the market’s longstanding functionality since 1950 doesn’t suggest a clever explanation for why investors “sell in May and leave” this year.
“For the year, the S
Wayne Duggan delights for a decade covering the latest market news and offering research and observation on popular stocks. Wayne is a senior contributor to U. S. News