Stocks are expected to finish the first half of 2024 strong, with just one more inflation hurdle for investors to overcome in the next week: the May consumer spending report. Stocks have defied all expectations midway through the year. Many investors expected limited stock gains going into 2024, but artificial intelligence-driven gains and signs of easing inflation have propelled stocks to new highs. Nvidia, which has surged more than 150% this year, briefly surpassed Microsoft this week to become the world’s most valuable publicly traded company. On Friday, the S&P 500 was hovering near its all-time high after briefly topping 5,500 for the first time this week. The broader market index has risen about 15% this year and closed at its all-time high 31 times. NVDA Nvidia on a mountain since the start of the year Many investors believe stocks could rise further this year, even as they have seen big gains, citing recent macroeconomic data suggesting strong fundamentals for stocks. “Overall, inflation is trending down, but the pace is gradual and just right,” said Terry Sandven, chief equity strategist at U.S. Bank Asset Management. “That helps support current valuations and, in our view, justifies further increases in stocks.” Personal consumption expenditures data, the Fed’s preferred inflation gauge, due next week could indicate whether this picture is intact. Inflation Check Traders who expect 2024 to finish strong point to brightening inflation and interest rate outlooks as the year progresses. After a strong first three months of the year, price pressures have recently begun to ease. For example, the Consumer Price Index for May did not increase from the previous month. Last month’s Producer Price Index, a measure of wholesale prices, unexpectedly fell from the previous reading. The May PCE, which shows the prices consumers pay for a wide range of goods and services, is expected to support these findings. Economists surveyed by FactSet expect core PCE, which excludes volatile food and energy prices, to rise 2.6% year-over-year last month, down from a 2.8% increase the previous month. If it comes in line with expectations or falls short, it could raise investor expectations that the Fed will cut rates this year. The Fed only signaled one rate cut this year at its last policy meeting, but investors are hopeful that slowing inflation and a cooling economy could lead to more cuts. According to CME’s FedWatch tool, the market has been pricing in two 0.25 percentage point rate cuts this year since September. Market Confidence Further confirmation of an improving inflation situation would undoubtedly boost sentiment, but investors have not lost confidence recently. Investors are the most bullish since November 2021, preferring to allocate to stocks over cash, which is at a three-year low, according to a global fund manager survey conducted by Bank of America Securities this week. Wall Street strategists are raising their year-end targets. This week, Goldman Sachs strategist David Kostin raised his year-end S&P 500 price target to 5,600 from 5,200, citing strengthening earnings expectations. Meanwhile, Citi strategist Scott Kronert raised his target to 5,600 from 5,100. That said, the second half of the year is not without risks. Many investors believe stocks could fall in the near term, given the recent rally. Others point out that continued geopolitical risks and the outcome of the U.S. election could increase stock volatility. .SPX S&P 500 at its highest since the start of the year At the same time, investors are divided on how to allocate their portfolios even as stocks continue to rise. Brian Leonard, a portfolio manager at Keely Teton Advisors, recommends investors allocate to small- and mid-cap stocks, which he sees as having “substantial” upside potential in the catch-up trade. “There’s a big gap between the performance of large and small caps,” Leonard said.He sees gains of more than 10% in small caps. Meanwhile, US Bank’s Sandven said investors should continue to allocate to large tech stocks where he expects the AI story to continue to unfold. “The speed is getting faster and faster, and speed, scale and efficiency don’t come without technology,” Sandven said. “So this definitely bodes well for tech-related companies as we head into the end of the year.” Meanwhile, on the earnings side, a series of corporate indicators will give investors further insight into inflation and its impact on consumer spending. Cruise line operator Carnival will report earnings on Tuesday. Package delivery company FedEx and food company General Mills will report earnings on Tuesday and Wednesday, respectively. The S&P 500 and Dow had a winning week through Friday afternoon trading, up 0.5% and 1.4%, respectively. The Nasdaq was down 0.1%. Calendar for the upcoming week All times are Eastern time. Monday, June 24th 10:30 AM Dallas Fed Index (June) Tuesday, June 25th 8:30 AM Chicago Fed National Activity Index (May) 9 AM FHFA Home Price Index (April) 9 AM S&P/Case-Shiller Composite 20-Year Home Price Index (April) 10 AM Consumer Confidence Index (June) 10 AM Richmond Fed Index (June) Earnings Releases: FedEx, Carnival Wednesday, June 26th 8 AM Building Permits Final (May) 10 AM New Home Sales (May) Earnings Releases: Micron Technology, General Mills Thursday, June 27th 8:30 AM Durable Goods Orders Preliminary (May) 8:30 AM GDP Final (Q1) 8:30 AM Initial Jobless Claims (06/22) 8:30 AM Wholesale Inventories (May) 10:00 AM Home Sales Prospects Index (May) 11:00 AM Kansas City Fed Manufacturing Index (June) Earnings: Nike, Walgreens Boots Alliance, McCormick & Co. Friday, June 28 8:30 AM Personal Consumption Expenditures (May) 8:30 AM Personal Income (May) 9:45 AM Chicago PMI (June) 10:00 AM Michigan Business Sentiment Final (June)
Wall Street is on track to finish off a strong first half ahead of key inflation report
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