If US stocks want to continue their gains, they need more definitive interest rate cut expectations and higher profit guidelines. The July CPI data and the Federal Reserve meeting will be the key influencing factors.
US stocks ended strongly in the first half of the year, but whether the gains can continue is the key.
Since the low in late October last year, US stocks have rebounded strongly by more than 33%, and the S&P 500 index has hit a closing high several times. However, since reaching a new high, investors began to sell off and settled profitably, and S&P has accumulated a cumulative decline of about 0.5%.
This reflects the “fragility” behind the strong upward trend in US stocks. On Friday, the May PCE price index released by the US hit its lowest record in three years, and the market's reaction to this was mediocre. S&P closed slightly up 0.09% on the same day. This may mean that in the past few months, expectations of interest rate cuts have almost been fully priced by the market.
Furthermore, S&P's current forward price-earnings ratio is still as high as 21 times, which is at a historically high level.
Therefore, if US stocks want to continue their gains, they need more definitive expectations of interest rate cuts and higher profit guidelines.
Focus on July: CPI, FOMC meetings
In the next month, the June CPI and Federal Reserve interest rate meetings will be key factors affecting the trend of US stocks.
On July 11, the US will release the June CPI data.
According to economists surveyed by FactSet, the CPI growth rate in June is expected to be 3.1% year over year, down 2 percentage points from 3.3% last month. If the data is in line with expectations, it will further support the Fed's interest rate cut, which is expected to cut interest rates early, which will benefit US stocks.
From July 30 to 31, EST, the Federal Reserve held an FOMC meeting and announced the new maximum profit rate resolution.
Currently, the market generally expects that the Federal Reserve will continue to “stand still” and keep the federal funds rate level unchanged in the range of 5.25% to 5.5%. Any statement Powell made about the interest rate path after the meeting will be the focus of the market.
Walter Zimmerman, ICAP Technical Analysis Chief Technology Strategist, said:
“The endless wait for the Federal Reserve to cut interest rates will definitely last all summer.”
Focus on the support level of 5200-5300
Stock market data at the beginning of this year shows that when S&P pulls back to the 5200-5300 range, there will be an increase in buying to support it.
Zimmerman believes that if S&P falls to this range again in July, investors' buying behavior will be an important basis for judging market confidence. That is, if there is no significant increase in buying, it may mean that the market is no longer optimistic about the stock market outlook.
Furthermore, there are opinions that S&P's 50-day average moving average is also very important (5269 points as of Friday's closing). Generally speaking, S&P is usually supported by this average, but when it falls below this average line, it often falls further.
According to FactSet data, in the past three years, S&P has fallen below the average level several times and continued to decline before bottoming out. There were three double-digit retracements.
Editor/Somer