According to the Zhītōng Cáijīng APP, the S&P 500 and NASDAQ Composite Indices rose last week due to lower-than-expected inflation data boosting investors' optimism about a Fed interest rate cut. Data showed that the S&P 500 rose nearly 1.6%, closing above the 5400 point mark last week, and the NASDAQ Composite Index rose more than 3%. These two indexes both closed at historic highs for four consecutive days last week. However, the Dow Jones Industrial average fell 0.5% last week.

Investors will experience a relatively calm week. The most important data is the latest data on US May Retail Sales, Manufacturing and Services PMI, and Initial Jobless Claims, which will be released late Tuesday Beijing time. In addition, there will be a one-day June holiday for the US stock market on Wednesday.

1. Inflation is falling in the right direction.

US CPI data for May showed that core CPI, which does not include the highly volatile food and energy categories, rose 0.2% month on month, the lowest level since June 2023. At the same time, US core PPI data in May remained flat month on month, lower than economists' expected rise of 0.3% month on month.

Economists believe that these data indicate that core PCE data for May, which will be released later this month and is the inflation index favored by the Fed, will also show weakness.

Stephen Juneau, US economist at Bank of America, said that anti-inflation is the most likely path forward. The bank predicts that US core PCE will grow 0.16% month on month in May. Stephen Juneau said, "The May CPI and PPI data are supportive of our view that the Fed will cut interest rates later this year. We believe that recent data significantly reduces the likelihood of the Fed having to raise interest rates. In addition, labor market data indicates that the likelihood of a rapid rate cut is also low." He added,"The loosening cycle that will begin in September is still possible, especially if housing inflation further slows down in the coming months."

2. Signs of weakness in the US economy and concerns among economists about the Fed being overly cautious

Inflation is falling and economic growth is slowing, but the Fed expects to cut interest rates only once this year. More and more Wall Street economists are worried that the Fed may be too cautious on its most stringent monetary policy in over 20 years. Economists are concerned that the US economy has shown signs of weakness, such as rising unemployment. If the Fed maintains high interest rates for too long, this situation could quickly deteriorate. That's why investors will closely monitor the latest data on initial jobless claims that will be released on Thursday. The latest data released last week showed that initial claims for unemployment benefits in the US rose to 242,000 in the week ending June 8, reaching a 10-month high.

Mohamed El-Erian, Chief Economic Adviser at Allianz, said that if the Fed waits until December to cut interest rates, the balance of risks favors "too late." Neil Dutta, Head Economist at Renaissance Macro, said in a report that there is ample reason to believe that further disinflation is still ongoing, and this will require the Fed to change its wording. Neil Dutta said that the risk is that the Fed does not change its stance.

3. US May Retail Sales Data

The US May retail sales data that will be released on Tuesday will be a key indicator of consumer behavior in the face of high interest rates. Economists predict that US retail sales for May will increase by 0.3% month on month, rebounding from no growth in April.

Wells Fargo's team of economists led by Jay Bryson told clients in a report:"We doubt that consumer spending will continue to increase at the pace we saw in the first quarter. The personal savings rate has fallen; with delinquency rates rising, consumer credit has slowed; and with slowness in the labor market, growth in real disposable income has weakened." They added,"These increasing unfavorable factors could put pressure on disposable income, which may restrain the growth of retail sales in the coming months."

4. Will US stocks usher in a bull market again?

Inflation data that is likely to be the latest driver of the current stock market rebound, after a difficult start in 2024. Julian Emanuel, Director of Equity, Derivative and Quantitative Strategies at Evercore ISI, said:"Inflation falling is still one of the main factors behind the US stock market's bull market."

Both the S&P 500 Index and the NASDAQ Composite Index closed at new historic highs for four consecutive trading days last week, as investors digested weak CPI and PPI data. Although the median forecast in the Fed's latest economic forecast summary released last week shows that it will only cut interest rates once this year, the market is still optimistic about two cuts in interest rates this year.

Jonathan Golub, UBS Group's chief US stock strategist, said that last week's inflation data and its implications for the final rate cut provided "greater upside potential" for his year-end outlook. He has set the S&P 500 index year-end target at 5600 points, one of the highest on Wall Street.