On Monday (July 8th), investors are waiting for key inflation data to further determine whether this year's market rebound is sustainable. Financial reports from some large financial and consumer product companies are also of concern.
The S&P 500 index rose 0.1% to 5572.85, hitting another record high; the Dow Jones Industrial Average fell 31 points, or 0.08%, to 39344.79; and the Nasdaq Composite Index rose 0.28% to 18403.74.
(Source: FX168)
(Source: FX168)
Rate cut expectations
A few events happening this week could intensify the momentum towards rate cuts.
Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Wednesday in his semi-annual testimony. The Consumer Price Index (CPI) for June, which will be released on Thursday, is expected to further boost expectations of a rate cut. Producer Price Index (PPI) data will be released on Friday.
The latest survey by the New York Fed shows that US inflation expectations have fallen for two consecutive months. The one-year inflation expectations for June in the US fell to 3.02%, down from 3.17% previously; the five-year inflation expectations for June fell to 2.8%, down from 3%. Three-year inflation expectations for June rose to 2.9%, up from 2.8% previously.
Focus of the week
On Tuesday, Jerome Powell submitted his semi-annual testimony to the Senate Banking Committee.
On Tuesday, US Treasury Secretary Janet Yellen testified to the House Financial Services Committee.
On Tuesday, Federal Reserve Chairman Michael Barr and Michelle Bowman gave speeches.
On Wednesday, Jerome Powell testified before the House Financial Services Committee.
On Wednesday, Fed officials Austan Goolsbee, Michelle Bowman, and Lael Brainard gave speeches.
The US Consumer Price Index (CPI) and initial jobless claims for the week will be released on Thursday.
On Thursday, Federal Reserve officials Raphael W. Bostic and Albert Musalem gave speeches.
On Friday, the University of Michigan Consumer Sentiment Index and Producer Price Index (PPI) will be released.
Citi, JPMorgan, and Wells Fargo will report earnings on Friday.
Market view
Krishna Guha of Evercore said, "While the CPI data will be key, we will be looking for signs from Powell that the Fed is nearing a decision to cash in and act in September, provided that sustained inflation messages are broadly confirmed that inflation rates have fallen."
Jason Pride and Michael Reynolds of Glenmede said that if US inflation eases and does not cause collateral damage to the economy, the easing cycle taken by the Fed may be bullish for risk assets. They pointed out: "Historically, synchronous global easing cycles have been a bullish signal for short- to medium-term stock markets."
A strategist at Principal Asset Management said, "As the US economy slows down, the Fed is about to cut interest rates. We expect the Fed to cut interest rates in September and December, but this requires more evidence of economic slowdown."
Thomas Tzitzouris of Strategas said that as economic data weakens and interest rate cuts approach in the fall, the bond market seems to be showing bullish tendencies in the second half of 2024. He pointed out that although there are more bullish positions, preliminary indications suggest that bearish positions are returning.
Tzitzouris said, "When we look at position data, we find that although the market has a bullish bias towards interest rate cuts, it is not entirely convinced that this will happen, because bears will slowly return to the market."
Large banks' financial reports
The large banks will begin their earnings season on Friday, with more analysts raising profit expectations than lowering them. At the same time, the forecast for 12-month forward earnings has reached a historical high.
John Stoltzfus from Allianz Global Wealth Management says strong earnings prospects and a strong economy will support higher valuations. He has raised the year-end target for the S&P 500 index to 5900 points.
Scott Rubner from Goldman Sachs says the threshold for corporate performance is high - high expectations are already built in.
"As earnings season kicks off this week, investors should prepare for some 'volatility,' but once companies resume buybacks, the market may rally again," said Mark Hackett from Nationwide.
Election Progress
There was no clear winner in the French elections, and it is thought that, because of the political stalemate, there is unlikely to be any major policy changes in France.
Meanwhile, US President Joe Biden has promised his Democratic colleagues that he will continue to participate in the presidential campaign.
Mike Wilson from Morgan Stanley says traders should be prepared for a stock market pullback due to uncertainty surrounding corporate earnings, Fed policy, and the US presidential campaign. He believes the third quarter 'will be rocky.'
Focus stocks
Apple's stock price rose 0.65% to another record high of $226.34 on Monday, the fifth consecutive day to hit a closing record since July 1st.
Boeing's stock price rose 0.55%. The company admitted to criminal conspiracy charges related to two fatal 737 Max crashes.
Tesla's stock price erased early losses and rose 0.56%, continuing an eight-day winning streak and a ninth consecutive gain.
Exxon Mobil's stock price fell 1%, as the company lowered its profit expectations for the second quarter due to lower industry profit margins on refining.
Southwest Airlines' stock price rose 1.45% as the company faces demands for a complete leadership and business overhaul by activist investor Elliott Investment Management. The company has appointed aviation veteran Rakesh Gangwal to its board of directors.
Airbus' stock price fell 0.44% as the company continues to deal with supply chain issues and reduce backlog orders, with monthly deliveries to date reaching a record high.
Eli Lilly and Co.'s stock price rose 0.39% as the company agreed to acquire US gut drug manufacturer Morphic Holding Inc. for about $3.2 billion, with a portion of weight-loss drug Zepbound's proceeds going to its experimental projects.
Devon Energy Corp.'s stock price rose 1.08% as it agreed to buy EnCap Investments LP's Grayson Mill Energy's Williston Basin business for $5 billion, amid ongoing consolidation in the US oil industry.
Paramount Global fell 5.33% as the studio agreed to be merged into Tianmu Media, a deal that will hand control of the iconic Hollywood movie company to producer David Ellison in one of the most high-profile acquisitions in the industry.
Lucid Group Inc. rose 7.85% as quarterly production and deliveries exceeded expectations, dispelling worries of a slowdown in the electric vehicle market.