This week will close out the second quarter of the year, as well as the first half.
Several key economic reports will be coming out. Core PCE inflation, which is the Fed’s preferred measure of inflation, will be accompanied by earrings reports for Nike (NKE), Jefferies (JEF), Micron Technology (MU), and Bed Bath & Beyond (BBBY).
The S&P 500 was up by more than 3% on Friday, part of a 6% gain over the week, making it the second best week so far in 2022, and the first up week since the end of May. It appeared the last rounds of bad news on inflation, consumer sentiment, and the Fed’s decision to pursue a more aggressive policy path were all priced in, as fear gave way to a sense the worst was over and a perception the last round of bad news was behind us.
The index is still on track of one of the worst first halves since 1970. There have been only five times the S&P 500 has lost 15% or more in the first half, and as of Friday it was down 18%.
On the bright side, LPL Financial chief market strategist Ryan Detrick noted, “As bad as [this year] has been for investors, the good news is previous years that were down at least 15% at the midway point to the year saw the final six months higher every single time, with an average return of nearly 24%.”
If you examine analyst’s price targets on S&P 500 companies recently, the estimate of the index would be 4,987.28 as of June 23. On that day, the index closed at 3,795.73, which implies analysts see an underpriced market which should rise by more than 30% in the next 12 months.
J.P. Morgan strategist Marko Kolanovic said in note he feels US equities may rise as much as 7% next week as investors seek to rebalance portfolios for the ends of the month, second quarter, and first half of the year.
Kolanovic said, “Next week’s rebalance is important since equity markets were down significantly over the past month, quarter and six-month time period. On top of that, the market is in an oversold condition, cash balances are at record levels, and recent market shorting activity reached levels not seen since 2008.”
Personal Consumption Expenditure data will come out this week. Bloomberg’s survey of economists predicts PCE to rise 0.7% in May compared to April’s 0.2%. Year over year is expected to rise 6.4%, compared to 6.3% in April.
Core PCE, which removes food and energy is predicted to hold even from April, with both numbers at 5.1%.
As the PCE data comes in, many economists are worrying the Fed will likely trigger a recession as they try to rein in inflation.
Economist Mohamed El-Erian said, “I do worry that the probability of a soft landing, which means you bring down inflation without unduly hurting growth and employment, has declined significantly because of a series of Federal Reserve mistakes.”
Other reports to watch for this week include durable goods on Monday, the Conference Board’s consumer confidence reading on Tuesday, and several other reports on manufacturing and housing later in the week.
