Will the S&P 500 Index Rally In the Upcoming Week?
August 15 2022 - 6:04AM
Finscreener.org
Equities are making a
long-awaited comeback as economic data points toward decelerating
inflation rates. After a record rally in July, benchmark indexes
have maintained their bullish streak well into August as well, as
stocks ended the fourth consecutive week in the green on August
12.
In fact, the S&P 500 index
ended last week with 3.26% gains, marking the longest weekly
winning streak since November last year. Many technical analysts
are predicting that the S&P 500 stocks have already bottomed
and are poised to gain momentum hereon.
Improving economic data
While July was the month for
“better-than-expected earnings,” analysts and economists expect
August to be the season for “better-than-expected macroeconomic
data.”
With a nearly 20% decline in
gasoline prices last month, the U.S. Consumer Price Index (CPI)
remained unchanged in July after a 1.3% rise in June. On a
year-over-year basis, CPI increased 8.5% in July, a sharp decline
from the 9.1% year-over-year rise in June. This is lower
than the Dow Jones consensus estimate of an 8.7% rise in CPI last
month.
Regarding this, John Augustine,
chief investment officer at Huntington National Bank, said, “This
morningU+02019s inflation report was a stress reliever and now
weU+02019re getting buying in stocks, bonds, and commodities. We
havenU+02019t had an inflation release that was lower than expected
in quite some time.”
Following the signs of cooling
inflation, the Federal Reserve is expected to ease its aggressive
hawkish stance. While interest rates are expected to rise in
September, the rate hike is expected to be in the 25-50 basis
points range. However, many contrarian analysts expect the Fed to
stick to its aggressive stance, given the red-hot labor
market.
Consumer sentiment is also
improving lately. The University of Michigan consumer index
preliminary August data stood at 55.1. This compares with the Dow
Jones estimate of 52.5.
Mixed GDP Expectations
Economists expect the U.S. GSP to
rise at a 1.4% annualized rate in the fiscal third quarter,
following two consecutive quarters of negative GDP growth. However,
the recent third quarter estimate has been downgraded from the
initial forecast of 2.5%. In fiscal 2022, the Philadelphia Federal
Reserve forecast indicates a 1.6% GDP growth, down from the prior
forecast of 2.5%.
Also, the U.S. GDP is expected to
expand at a 1.3% rate in fiscal 2023. This is a full
percentage point down from the prior GDP forecast.
After the optimistic inflation
data was released last week, investors and analysts are awaiting
the housing data release scheduled for next week. According to Dow
Jones economists, home sales are expected to decline more than 6%,
driven by the rising mortgage prices. A cooling housing market
could signal declining consumer spending, further substantiating
the inflation slowdown expectation.
The bottom line
Markets are also keenly waiting
for the earnings data for industry-leading retail stocks such
as Walmart (NYSE: WMT)
and Target (NYSE:
TGT). This comes as
Walmart’s latest downgrade on quarterly and full-year profit
outlook concerned investors. However, Morgan
Stanley (NYSE:
MS)
recently stated that concerns surrounding Walmart’s recent earnings
downgrade might be overblown.
Target (NYSE:TGT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Target (NYSE:TGT)
Historical Stock Chart
From Sep 2023 to Sep 2024