Fed’s Favorite Inflation Measure to Reveal Promising Trends: What to Watch This Week

As we dive into the final trading week of June and the second quarter of 2024, investors are greeted with a thrilling mix of promising economic data and selective corporate earnings reports. Could we be on the verge of an economic boom? Central to this optimistic outlook is the release of the May Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure. This critical data, alongside key earnings reports, will shape market sentiment as we approach the second half of the year.

 

Key Inflation Data Reflects Positive Trends

On Friday, the eagerly awaited May PCE price index will be unveiled. Expectations are for core PCE, excluding volatile food and energy prices, to have increased by just 0.1% month-over-month, marking the slowest rise since November 2023. Annually, core PCE inflation is anticipated to rise by 2.6%, the lowest rate since March 2021. This follows the encouraging trend seen earlier this month when the Consumer Price Index (CPI) indicated a continued cooling of inflation. Such developments boost investor confidence that the Federal Reserve might cut rates later this year, aligning with Fed projections released on June 12, which suggested at least one rate cut in 2024.

 

Selective Earnings Reports Highlight Growth

This week’s earnings calendar, while light, includes highlights from FedEx (FDX) on Tuesday, Micron (MU) on Wednesday, and Nike (NKE) on Thursday. Micron’s report will be closely watched for signs of robust AI demand, a sector that continues to flourish. Nike’s performance is under the spotlight as the company skillfully navigates competition in the athletic footwear market, with promising strategies to regain market share and drive growth.

 

AI Sector Continues to Propel Markets

The AI sector remains a powerhouse, significantly driving market performance. Despite predictions that the rally would broaden, AI-related stocks continue to lead the way. Nvidia (NVDA), Super Micro Computer (SMCI), Broadcom (AVGO), and Micron (MU) are among the top performers, showcasing the sector’s vitality. Additionally, AI-linked energy companies like Vistra (VST) and Constellation (CEG) have posted impressive gains.

 

The performance gap between major indices has narrowed, with the S&P 500 up over 14% and the Nasdaq rising more than 17% year-to-date. In contrast, the Dow Jones Industrial Average has shown steady growth, gaining 3.8% so far in 2024.

 

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, emphasized the value of maintaining a diversified portfolio and investor patience. He highlighted that despite signs of economic slowing, equity markets have continued to make substantial gains, demonstrating the importance of staying invested.

 

Positive Political Developments

Outside of market hours, Thursday night’s presidential debate between President Joe Biden and former President Donald Trump will attract attention. This debate, the first of two scheduled, is expected to provide insights that could positively influence investor sentiment.

 

Four Key Themes for a Bright 2024

As Wall Street strategists reflect on the first quarter earnings and look ahead to the second quarter results, four key positive themes have emerged, according to JPMorgan’s equity strategy team:

AI Investment and Development: AI continues to dominate corporate strategies and earnings calls, with numerous companies announcing increased capital expenditures and new AI models, signaling sustained innovation and growth.

Weight-Loss Drugs: Eli Lilly’s (LLY) significant gains, driven by its weight loss drugs Mounjaro and Zepbound, underscore the potential in the healthcare sector. Eli Lilly’s growth cements its position among the top ten largest companies in the S&P 500.

US Consumer Resilience: Consumer spending remains robust, a major contributor to US GDP growth. Despite stretched wallets and value-seeking behavior, the resilience of US consumers continues to drive the economy forward.

Expense Management and Efficiency: Companies continue to focus on efficiency, a trend that began in 2022. Tech giants like Alphabet (GOOG) lead this trend, managing headcount growth and streamlining operations to enhance productivity and profitability.

As we conclude Q2, these positive themes, alongside encouraging inflation data and selective earnings reports, set a promising tone for the market outlook in the second half of 2024. Investors can look forward to a period of sustained growth and innovation, navigating the evolving economic landscape with confidence and optimism. Could we be witnessing the dawn of a new economic boom? Stay tuned as this exciting narrative unfolds.

Stock to Watch: iQSTEL Inc. (IQST) skyrockets towards a quarter-billion in revenue, marking a ‘hockey stick growth’ with its strategic acquisition of QXTEL, setting the stage for unparalleled market dominance.

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