Wall Street Week Ahead: Inflation data, presidential debate could sink summer rally

The S&P 500 is up nearly 12 per cent this year on strong earnings and signs inflation may be falling enough for the Federal Reserve to cut benchmark interest rates, but that rally is unlikely to continue in the months ahead, investors said.

“Markets are pretty richly valued at this point, and everything has to go right between now and July for the Fed to deliver any interest rate cuts,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute. Hotter-than-expected inflation data early this year dampened expectations for Fed rate cuts in 2024, pushing yields broadly higher. Then a dip in the rate of price increases in April was widely seen as giving the Fed cover to ease, with the market now pricing in a 35 basis point cut by the end of December.

At the same time, global fund managers have their highest stock allocation since January 2022, according to BofA Global Research. “When everybody is long, there’s nobody left to buy,” said Giuseppe Sette, president of market-research firm Toggle.This year’s election race between President Joe Biden, a Democrat, and Republican former President Donald Trump is another unknown.

Source: Financial Digest (financialdigest.net)

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