Wall Street is set to wrap up a strong first half with a key inflation report on deck

Published Fri, Jun 21 20242:06 PM EDTUpdated Sun, Jun 23 20245:47 PM EDT

With stocks set to close out a strong first half of 2024, investors have just one more key inflation hurdle to clear in the week ahead: May's personal expenditure report. Stocks have defied all expectations at the midpoint of the year. While many investors came into 2024 anticipating limited gains for equities, an artificial intelligence-fueled rally — as well as signs of easing inflation — have pushed stocks toward fresh highs. Nvidia, which has surged more than 150% this year, this week temporarily unseated Microsoft as the world's most valuable public company. On Friday, the S & P 500 was hovering near an all-time high after briefly topping 5,500 this week for the first time ever. The broad market index has advanced roughly 15% this year and has notched 31 record closes. NVDA YTD mountain Nvidia Many investors think stocks could see even more gains to start the second half, citing a spate of recent macroeconomic data suggesting a strong fundamental backdrop for equities. "On balance, we are seeing the trend toward slower inflation, but at a gradual pace, and that's Goldilocks," said Terry Sandven, chief equity strategist at U.S. Bank Asset Management. "And that's helped support valuations where they are today, and in our view, warrants even still higher equity prices." Next week's personal consumption expenditure data, the Federal Reserve's preferred inflation gauge, could show whether that overall picture is intact. Inflation confirmation Traders anticipating 2024 to close out on a high note point to inflation and interest rate outlooks that have grown rosier as the year progresses. After coming in hot during the first quarter of 2024, pricing pressures have recently started to ease. May's consumer price index, for example, showed no increase from the prior month, while last month's producer price index , a measure of wholesale prices, unexpectedly dropped from the previous reading. May's PCE, which captures the prices consumers pay on a wide range of goods and services, is expected to reinforce those findings. Economists polled by FactSet anticipate core PCE, which excludes volatile food and energy prices, to have risen by 2.6% last month from the year-earlier period, down from 2.8% in the prior month. A reading that comes in line with expectations, or even lower, could bolster investor hopes for Fed rate cuts this year. While the central bank indicated in its last policy meeting that it anticipated just one reduction this year, investors are hopeful that softer inflation, and a cooling economy, could signal more reductions are coming. The CME FedWatch Tool showed markets were last pricing in the likelihood of two quarter-percentage point reductions this year, starting in September. Market confidence Further confirmation of an improving inflation picture would boost sentiment, but even failing that investors are not lacking confidence as of late. A global fund manager survey from Bank of America Securities this week suggested investors are the most bullish they have been since November 2021, preferring to allocate toward equities over cash, which sits at a three-year low. Wall Street strategists are upping their year-end targets. This week, Goldman Sachs strategist David Kostin hiked his year-end S & P 500 price target to 5,600 from 5,200, citing a strengthening corporate earnings outlook. Elsewhere, Citi's strategist Scott Chronert upgraded his target to 5,600 from 5,100. Still, that doesn't mean the second half of the year isn't without risks. Many stock investors are envisioning a near-term pullback from the recent rally. Others point to continued geopolitical risks and uncertain U.S. election outcomes that could add volatility to stocks. .SPX YTD mountain S & P 500 At the same time, investors differ on how to allocate their portfolios even if stocks continue to rise. Brian Leonard, portfolio manager at Keeley Teton Advisors, recommends investors look to small- and midcaps, where he expects there is "considerable" more upside in a catch-up trade that he says is "long overdue." "There's a huge bifurcation between the performance of larger-cap stocks and smaller-cap stocks," Leonard said. He expects upside of 10% or more in small caps. On the other hand, U.S. Bank's Sandven said investors should continue to allocate toward large-cap tech, where he anticipates the story of AI will continue to play out. "Fast is getting faster, and speed scale and efficiencies do not occur without technology," Sandven said. "So, that certainly bodes well for tech-related companies as we look to, really, toward the end of the year." Elsewhere, on the earnings front, a spate of corporate bellwethers will give investors further insight into inflation and how it's affecting consumer spending. Cruise line operator Carnival reports Tuesday. Package delivery firm FedEx and food company General Mills post results Tuesday and Wednesday, respectively. The S & P 500 and Dow each registered a winning week on Friday, up 0.6% and 1.45%, respectively. The Nasdaq closed out the week flat. Week ahead calendar All times ET Monday, June 24 10:30 a.m. Dallas Fed Index (June) Tuesday, June 25 8:30 a.m. Chicago Fed National Activity Index (May) 9 a.m. FHFA Home Price Index (April) 9 a.m. S & P/Case-Shiller comp.20 Home Price Index (April) 10 a.m. Consumer Confidence (June) 10 a.m. Richmond Fed Index (June) Earnings: FedEx , Carnival Wednesday, June 26 8 a.m. Building Permits final (May) 10 a.m. New Home Sales (May) Earnings: Micron Technology , General Mills Thursday, June 27 8:30 a.m. Durable Orders preliminary (May) 8:30 a.m. GDP final (Q1) 8:30 a.m. Initial Claims (06/22) 8:30 a.m. Wholesale Inventories (May) 10 a.m. Pending Home Sales Index (May) 11 a.m. Kansas City Fed Manufacturing Index (June) Earnings: Nike, Walgreens Boots Alliance , McCormick & Co. Friday, June 28 8:30 a.m. Personal Consumption Expenditure (May) 8:30 a.m. Personal Income (May) 9:45 a.m. Chicago PMI (June) 10 a.m. Michigan Sentiment final (June)