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• U.S. core PCE index was up in line with expectations in April.
• BMO Capital now sees upside in the S&P 500 to 5,600 by year end.
• The benchmark index is already up well over 10% year-to-date.

U.S. stocks are in focus today after the Bureau of Economic Analysis said the core personal consumption expenditures price index was in line with expectations in April.
 

S&P 500 outlook after PCE inflation data

For the month, Fed’s preferred inflation gauge came in up 0.2% down from 0.3% in March.

The inflation data bodes well for the S&P 500 that Brian Belski – the chief investment strategist at BMO Capital Markets now expects will climb further in the back half of 2024.

 

This fits the historical pattern. If we have a very strong May then May to August or September or end of the year even, performance is actually quite bullish.

His 5,600 year-end target suggests the potential for another 7.0% gain from here. The benchmark index is already up well over 10% versus the start of this year.
 

Is the S&P 500 outlook based on rate cuts?

The core PCE came in at 2.8% for the year this morning – up slightly versus 2.7% expected.

On Friday, the Bureau of Economic Analysis also reported headline PCE at 2.5% for the year and 0.3% for the month – both in line with forecasts. On CNBC’s “Halftime Report“, BMO Capital’s Belski also said:

 

This is the final unwind of stocks only go up if interest rates go down. Stock market proved the otherwise the last couple of years and I think that’s the true fundamental path of the market.

Other notable data in today’s update include personal income which popped 0.3% in April – in line with estimates. A 0.2% increase in spending came in shy of 0.4% expected.
 

When will the Fed begin cutting rates?

Treasury yields moved lower following the core personal consumption expenditure price index data on Friday.

Chris Larkin of Morgan Stanley expects the market to read the data as positive but recommends that investors remain patient. In a statement this morning, he added:

 

The Fed has suggested it will take more than one month of favorable data to confirm inflation is reliably moving lower again, so there’s still no reason to think a first rate cut will come any earlier than September.

The U.S. Federal Reserve is scheduled for its next policy announcement on June 12th. Ahead of it, the S&P 500 is trading just below its all-time high of over 5,300 level.

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