US Stocks Set To Finish Q2 On Upbeat Note But Will Inflation Play Spoilsport? Analyst Says Seasonality Data Supports Buying Potential Dips

The major index futures pointed up on Friday, potentially reacting to the outcome of the first presidential debate between the two presumptive 2024 candidates. Most experts view a victory for former President Donald Trump as a positive for the market, given his inclination toward deregulation and stance on taxation. In the interim, the market is left to contend with another earnings disappointment from a consumer stock. The rally also faces a key test as a key inflation measure – considered the Federal Reserve’s preferred gauge, is due out ahead of the market open. The market has factored in the annual rate of the measure to drop to its lowest level since March 2021.

The S&P 500 and the Nasdaq Composite are on track to finish the month and quarter on an upbeat note, thanks to earnings momentum and slowing inflation.

Stocks went about in a lackluster manner on Thursday, as traders digested the revised first-quarter GDP report that showed slightly better growth than initially estimated and a slight upward revision to inflation metrics. Jobless claims for the recent reporting week fell, while durable goods orders ticked up. Stocks also reacted to disappointing earnings from a couple of consumer-facing companies and soft guidance from memory chipmaker Micron Technology, Inc. MU.

The S&P 500 Index and the Nasdaq Composite closed higher for a third straight session and yet settled just shy of their record highs. Small-cap stocks outperformed the major averages, with the Russell 2,000 Index closing notably higher.

Among the sector indices, consumer discretionary, communication services and real estate stocks advanced notably, while most other sectors, including IT stocks, moved to the downside.

Insights From Analysts:

The market could be digesting June’s strong gains, according to fund manager Louis Navellier. “The VIX is flat and the market is not moving with much conviction in either direction,” he said. “The market appears to want to move quietly into the month’s end tomorrow and lock in the gains already in place.”  

LPL Chief Technical Strategist Adam Turnquist raised the specter of a potential pause or pullback in the second half of the year as the first half draws to a close. He noted that the equity market is entering the second half with “impressive momentum,” primarily powered by a handful of mega-cap names.

Among the positives that are supporting the upside are impressive earnings growth and easing inflationary pressure that provides scope for a Fed rate cut, he said.

“Technically, the S&P 500 remains in a bull market and above its long-term uptrend, but overbought conditions — especially in technology and semiconductors— and notable divergences in market breadth point to a potential short-term pause or pullback in this rally,” Turnquist said.

“Seasonality data suggests dips should be bought, as the S&P 500 historically finishes higher in the second half, especially after a strong first half.”

Upcoming Economic Data:

• The Bureau of Economic Analysis will release its personal income and spending report for May at 8:30 a.m. EDT. Personal income and spending may have increased 0.4% and 0.3%, respectively, month-over-month. This compares to the April rates of 0.3% and 0.2%. The annual rates of the personal consumption expenditure index and the core PCEI are expected at 2.6% each. In April, these measures rose by 2.7% and 2.8%, respectively.
• The ISM-Chicago is due to release the results of its regional manufacturing survey at 9:45 a.m. EDT. The Chicago business barometer may have increased from 35.4 in May to 40 in June, still below the 50 mark that separates expansion and contraction.
• The University of Michigan’s revised consumer sentiment index for June, due at 10 a.m. EDT, is expected to be revised up from the preliminary reading of 65.6 to 66, although lower than May’s 69.1. Traders may also focus on the inflation expectations readings of the survey.
• Among the Fed speeches scheduled for the day are:
  • San Francisco Fed President Mary Daly at 8:40 a.m. EDT and 12:40 p.m. EDT
  • Fed Governor Michelle Bowman at 12 p.m. EDT

See also: Best Futures Trading Software

Stocks In Focus:

• NIKE, Inc. NKE fell over 14.50% in premarket trading following the company’s earnings announcement. Under Armour, Inc. UA moved in sympathy.
• Trump Media & Technology Group Corp. DJT climbed over 9.50% after Donald Trump was perceived as the winner of the first presidential debate held late Thursday.

Commodities, Bonds And Global Equity Markets:

Crude oil advanced past the $82-a-barrel mark and gold futures also gained ground. The benchmark 10-year U.S. Treasury note rose 2.2 basis points to 4.31%. Bitcoin BTC/USD rose modestly toward the $61.5K level.

Among equity markets, Asian stocks closed mostly higher, led by the Indonesian, Chinese and Japanese markets, as traders weighed in on the positive close by Wall Street stocks overnight, the presidential debate and the impending U.S. inflation. The New Zealand market remained closed for a public holiday. European stocks were mixed, with the French market pulling back, while the U.K. market firmed up following the release of revised first-quarter GDP data that came in stronger than initially estimated.

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Stocks Photo by Jirapong Manustrong on Shutterstock