This analysis focuses on recent market developments with an emphasis on the impact the PCE Price Index and projected steps by the Federal Reserve. In spite of the positive news, we are cautious because of persistently high inflation and likely interest rate hikes. Our top five stocks that we think are better than the SPDR S&P ETF Trust.
Important Points
1. S&P 500 continued its summer rally after the PCE price data. The Fed will still raise interest rates despite a lower than expected inflation rate. Earnings outlooks are also continuing to fall despite the Fed’s expectations.
2. Despite PCE prices cooling faster than expected, core inflation continues to be hot at 4.6% and 0.3% annually. It is possible that this, along with the expectation that interest rates will be raised by the Fed, could cause a market correction to occur at the end summer.
3. Market risks are mainly tied to a declining earnings outlook. The S&P 500 may face resistance to a new high if earnings outlooks for the second half continue to weaken.
S&P 500 reacted positively, reaching new highs for the summer, after the Persona Consumption Expenditures index (PCE) slightly shook expectations. The softer-than-predicted PCE data extended the S&P 500’s summer rally, after an unexpected dip in inflation. This news could boost market activity during mid-summer in spite of the high inflation rate and Federal Reserve’s looming rate hike.
PCE Price Index, an important indicator of inflation, decreased marginally by 0.1% in comparison to the previous months. This was 30 points above expectations, and could indicate a slowing down of inflation. Core inflation, which is a more important figure, was ‘hot’, at 0.3% per month and 4.6% YOY. These numbers have decreased by 0.1% but remain within a stable range. Since half a decade, the core YOY PCE comparison has remained between 4,6% and 4.7%. It is still far from following the headline figure.
The Federal Open Market Committee is expected to raise rates at its next meeting, which will be held in late July, despite the lower PCE data. The possibility of a hike has slightly decreased following the PCE data. However, the chances are still high that rates will stabilise at a new 525-550 basis point range, and possibly continue until the end of the calendar year. Contrary to what the Federal Reserve believes, the likelihood of two 25-point increases is relatively low.
The impact of government spending is one factor that can influence inflation. Since the beginning of the pandemic, stimulus projects have continued to have an impact. Initiatives like the Inflation Reduction Act help to boost inflation by boosting demand for basic materials.
Market risk is primarily the negative outlook for earnings. Consensus estimates for Q2Q3, Q4 declined towards the end Q1 The S&P 500 has been crashing to new lows since the reporting period. Despite this, the S&P 500 showed signs of growth in revenue and margins. Nike, however, is one of the companies that have remained afloat. reported The retail and apparel industries may be experiencing collective weakness due to weak quarterly results.
The S&P 500 is advancing despite these obstacles, and it’s entering risky territory. It could be heading to a peak. In this case, the market will reach a high before the end the earnings season and set up a possible fall. The S&P 500 may have difficulty reaching its new high if the outlook for the next half of the year continues to dim.
It is a good idea to look at tech stocks, such as SPDR S&P500 ETF trust. However we have identified other stocks that are highly recommended. These top-rated analysts believe that the five highlighted stocks are better investments than SPDR, despite SPDR’s current ‘hold rating’.
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