Inflation Data to Make or Break the Market



  • S&P 500 fails to maintain upward momentum seen at the tail end of May, ends the week lower
  • Despite better and more reasonable ratings, there are not very strong reasons to show bullishness at present.
  • May US inflation data will be the next big catalyst for stocks

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U.S. stocks were unable to keep up with the upward momentum seen at the tail end of May and ended the week slightly lower as sentiment began to deteriorate. JP Morgan CEO Jamie Dimon’s comments are warning investors prepare for economic “hurricane” contributed in part to the bearish atmosphere. Elon Musk echoed that sentiment and warned that he had “super bad feeling” about the economy, reinforcing the prevailing negative narrative. When all was said and done, the S&P 500 lost 1.2%, while the Nasdaq 100 declined about 1%.

Despite the resilience of the economy, investors remain very worried about the outlook, fearing that the Fed could trigger a difficult landing in the process of curbing inflation – a bad outcome for corporate spending. La last data stream, rather than reassure the market that the The Armageddon scenario is still far-fetchedhave merchants speculating that the U.S. central bank will have to step on the gas and raise borrowing costs more strongly restore price stability above the forecast horizon. As a result, U.S. Treasury rates have resumed their upswing, with the 2-year yield beginning to push its cycles high in the past few trading sessions.

With so much uncertainty, there is no gain on Wall Street these daysnothing satisfies merchants. We have reached a point where good data is interpreted as a sign that demand remains strong and will lead to more inflation, and wherebad data is considered a prediction of a recession. Against this backgroundvolatile could remain levita and cause sporadic attacks of turbulence, making it very difficult for stocks to stage a major recovery.

Looking ahead, the week begins with economic releases, but ends loaded with the May Consumer Price Index report and the June Michigan Consumer Confidence Survey, which will be out on Friday. For a feeling to improve significantly, inflationary pressures will have to continue to relax and convincingly show that the worst is over. With energy costs rising again, May headline CPI is expected to remain unchanged at 8.3% yoy, but the core gauge is seen moderating to 5.9% yoy from 6.2% yoy in April. The lower the number for these indicators, the better for risky assets.

Focusing on the S&P 500, estimates have compressed and are now more reasonable after the 2022 sale. For example, the forward 12-month P / E ratio fell from 22x at the beginning of the year to 17x, largely in line with the 10-year average. Although some of the foam has been removed from the market, there is still not much reason to be optimistic, especially with little interest from large investors to redistribute capital into shares. In this environmentthe S&P 500 is likely to be subdued soon.


S&P 500 Forecast for the Previous Week: Inflation Data to Make or Break the Market

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— Written by Diego Colman, Market Strategist for DailyFX



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