S&P 500 is expected to open in the green today after the U.S. Bureau of Labour Statistics said inflation was up less than expected in June. 

Markets will likely well receive the CPI data as the index declined on a month-over-month basis as well. 

SPX is currently up close to 20% already versus the start of 2024. 

CPI data today creates room for rate cuts

Compared to a year ago, the consumer price index came in at 3.0% versus the Dow Jones estimate of 3.1%. 

The monthly inflation data may create more room for the U.S. Federal Reserve to begin cutting rates in September. Chair Jerome Powell has already said that keeping interest rates higher for too long could “unduly weaken economic activity”. 

Note that the benchmark S&P 500 index is at a record high at writing. 

There’s still upside left in the S&P 500

For the month, the headline inflation came in down 0.1% on Thursday versus a 0.1% increase expected. 

Core inflation, excluding food and energy, printed at 0.1% for the month and 3.3% for the year – both slightly better than the experts’ forecast. The positive inflation data today feeds into the forecast for Lori Calvasina (RBC Capital Markets) for S&P 500. 

 

We’ve described ourselves as a tired bull and neutral recently. Today, we would alter that slightly and characterise ourselves as a nervous and jumpy bull.

Calvasina raised her year-end target for the benchmark index last week to 5,700 that signals potential for another 1.0% gain from here. 

What else was noteworthy in today’s CPI report

Food and shelter prices inched up 0.2% in June but were largely offset by a significant 3.8% decline in gasoline prices. Used car priced were down over 10% on a year-over-year basis last month.

Still, Lori Calvasina of RBC Capital Markets expects the S&P 500 to pullback between 5.0% and 10% before it hits the 5,700 level primarily because valuations look inflated at present. Her research note told clients last week:

Seasonality is adding to our concerns about a pullback. Over the past decade, July has been a good month for the S&P 500, but the index does tend to run into trouble in August, September and/or October.

Her year-end target on S&P 500, however, is not the highest one in Wall Street. Analysts at Stifel, Nicolaus & Co expect the benchmark index to even hit 6,000 level in 2024.

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