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Dow Jones, Nasdaq, S&P 500 weekly preview: June CPI data, Q2 season in focus

Published 07/08/2024, 07:59 AM
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The S&P 500 rose to a new high on Friday, achieving a record close as the latest jobs report fueled hopes for Federal Reserve rate cuts.

The benchmark market index increased by 0.54%, closing at 5,567.19, while the Nasdaq Composite climbed 0.90% to end at 18,352.76. Both indexes hit all-time highs during the session and ended at record levels, with the S&P 500 marking its 34th record close of 2024. The Dow Jones Industrial Average added 0.17%, or 67.87 points, closing at 39,375.87.

Labor data released on Friday morning showed a 206,000 increase in nonfarm payrolls for June, but the unemployment rate edged up to 4.1%, slightly higher than economists' expectations of 4%.

All three major indexes ended the week positively. The Nasdaq Composite rose 3.5%, the S&P 500 climbed nearly 2%, and the Dow added close to 0.7%.

The S&P 500’s rally this year has reached 16.7%, with the broad index posting its fourth positive week in the last five as investors anticipate that any economic downturn later this year will prompt a rate cut from the Federal Reserve.

The key macro events this week include Powell’s testimony, as he speaks before the Senate on Tuesday and the House on Wednesday.

In addition, the NATO summit in Washington will take place from Tuesday to Thursday. China's CPI/PPI for June will be released on Tuesday night, followed by the US CPI for June on Thursday.

According to Wells Fargo economists, consumer price inflation likely rose in June compared to May but continued to ease through the month-to-month noise.

“We expect that headline CPI rose 0.1% in June and core CPI registered a “high” 0.2% gain,” they said.

“While a bounce back in core services ex-housing is likely to propel the pickup, favorable seasonal factors and broadly easing price pressures should mitigate the extent of June's rebound.”

China’s import and export data for June will also be available on Thursday night, and the US PPI for June will be released on Friday.

Q2 earnings season kicks off this week

Alongside macroeconomic events, this week also marks the start of the Q2 reporting season.

The new earnings period will kick off with reports from JPMorgan and other major financial institutions.

Strategists at UBS expect the S&P 500 EPS to grow by 7.4%. With the usual pace of revisions and surprises, they anticipate growth to finish between 10.5% and 11.0%.

“By contrast, EPS is expected to grow 5.0% and 2.0% when measured on an equal-weighted basis or if TECH+ stocks are excluded,” strategists said in a note.

Moreover, the cap-weighted index is expected to outperform the equal-weighted benchmark by an average of 3.2% throughout 2024.

Also, the Big 6 TECH+ companies are projected to grow 31.8% in 2Q, compared to 68.2% in 4Q23 and 18.7% in 4Q24, while the rest of this group is estimated to grow 9.8% in 2Q, versus 19.1% in 4Q24. Non-TECH+ companies should see growth of 2.0% in 2Q, compared to -0.2% in 4Q23 and 10.8% in 4Q24, UBS noted.

What analysts are saying about US stocks

BTIG: “In many ways this is an unprecedented market with few parallels. Sure we have seen periods with lopsided breadth (late '90s), optimistic sentiment (late '21) and low- volatility ('17). Yet the current market seems to have all of them, in some cases at extreme levels, and yet nothing seems to break the current cycle. What is clear is that the broadening we saw in late '23 on implied rate cuts is not happening this time around. The 2yr yield is at the lowest level since March, yet the equal vs. cap- weight ratio has plunged and cyclical groups continue to struggle. This is coming as the economic surprise index also falls to fresh lows, which suggests that markets are more concerned with slowing growth than with rate cuts. So we remain stuck in this period where breadth can't improve, but the mega-cap growth names continue to play 'whac- a-mole' and suck up the fresh capital. This is the longest stretch since at least 2015 without all of the 'Mag 7' names being down on the same day. Until this rotation stops, it’s tough to get any sort of index volatility. The rubber band gets more stretched every day, but predicting the timing of when it snaps remains a uniquely difficult endeavor.”

Bank of America: “The S&P 500 (SPX) has continued to new all-time highs and is approaching the 2022- 2023 bullish cup and handle count in the 5600s. The early 2024 breakout to new all-time highs projects further upside to 6150. Tactical supports: 5440s, 5340, 5265 and 5191.

“The Russell 2000 (IWM), S&P 500 equal weight (RSP), NYSE (NYA) and Dow Jones Industrial Average (INDU) continue to lag and have not hit new highs. In our view, even these laggards have constructive absolute chart patterns that support the case for higher highs, but they need to join the SPX at new highs to confirm a healthy summer rally for US equities.”

Evercore: “It is difficult to imagine that at 24x TTM EPS on the S&P 500 it is possible to “Buy (Anything) Low”. Yet as 2Q24 Reporting season begins both the calendar and reports from Corporate America will catalyze opportunities to generate Alpha. EVR ISI’s Stan Shipley forecasts 2Q YoY EPS growth of 11.5%, comprising 8.0% plus a 3.5% “EPS Surprise”. Such an EPS quarter would put S&P 500 EPS on course for our full year $238e (+8.1% YoY) after 1Q’s +5.9%. Strength will come from Comm. Svcs., Health Care and Info. Tech. while Industrials and Materials are at risk. Much of the strength is driven by strong Info Tech Net Margins.”

Oppenheimer: “We greet the new week with our second upwardly revision to our price target for the S&P 500 for this year. We’re revising our year-end forecast to 5,900 from 5,500 previously. This is our third price target for year 2024, which began with a 5,200 price target for this year which we initiated last December 11. S&P 500 earnings results over the most recent three quarterly reporting seasons (Q3 ‘23, Q4 ‘23, and Q1 ‘24) and economic data that has provided evidence of resilience underpinned by the Fed’s mandate-sensitive monetary policy remains at the core of our bullish outlook for stocks.”

JPMorgan: “The consensus view in the first half of the year has been to buy Cyclical sectors on PMI rebound, and also to favour consumer exposure on an improvement in real disposable incomes. While we have some sympathy with the view that European consumers could fare better this year than last, on falling inflation and on rate cuts, and clearly the Eurozone consumer wasn’t maxed out, with still elevated net wealth position, we have argued through Q2 to play a barbell of Defensives together with Mining. Stylewise, we entered the year again OW Growth vs Value, same as last year, and keep that view, for now."

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