With Memorial Day fast approaching, don’t expect any more lazy summer days. The market outlook is unsettlingly uncertain.
Admittedly, May did not live up to its reputation as a sell-off period. Despite the recent volatility,
Dow Jones Industrial Average
It’s up more than 3% this month.
S&P 500 Index
and
Nasdaq Composite Index
They rose 5% and 8%, respectively. All three indexes are near their all-time highs.
But it’s hard to ignore the wild swings over the last week. Even Nvidia
of
The strong results didn’t stop stocks from falling. The Dow bore the brunt of the pain, falling more than 2%, while the S&P 500 and Nasdaq both experienced big swings. Not much is likely to change the situation this week. Up next on the schedule is Costco Wholesale’s earnings release.
,
Salesforce
,
home page
Co., Ltd,
Dell Technologies is also scheduled to report earnings. Investors should also check out the latest consumer confidence index, the Federal Reserve’s Beige Book, weekly jobless claims and revised first-quarter gross domestic product.
That means waiting until Friday for the government’s April personal income and expenditure report, which includes the latest PCE price index for inflation. Dan Genter, CEO and chief investment officer at Genter Capital Management, said investors should pay particular attention to the core number, which excludes food and energy costs, which is expected to show a 2.8% year-over-year increase, unchanged from the previous month. That’s too high for the Fed, Genter said. Baronsand suggests the Fed is unlikely to ease monetary policy anytime soon.
“Interest rates are going to stay higher for longer. We may not see any cuts this year at all,” Genter said. With that in mind, investors might want to position their portfolios defensively, he said. He’s been buying struggling health-care stocks, including CVS Health and Bristol-Myers Squibb.
.
Investor expectations for how big a cut the Fed could make, even if it does, may be unrealistic, said Roger Arriaga-Diaz, chief Americas economist at Vanguard Group Inc. He believes markets have yet to adjust to the idea of ​​higher interest rates for an extended period of time, adding that even if the Fed does cut rates, it’s unlikely they’ll return to pre-COVID levels of 1.5% to 1.75%.
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That’s not good news for the S&P 500, whose valuation of about 22 times expected 2024 earnings is starting to look a bit pricey. As a result, Arriaga-Diaz expects more volatility in the coming months. “Right now, I believe the market is overvalued,” he says. “The risk to equities is to the downside.”
Interest rates and inflation aren’t the only factors that could drag stocks down, according to David Bianco, chief investment officer for the Americas at DWS Group. “The S&P could see some declines in the summer before the election,” he said, adding that “global geopolitical intensification could also roil the market.” He said the S&P 500 could fall to 4,800, a 9% drop from current levels and just below the threshold for an official correction.
It’s going to be a summer to remember, but not in a good way.
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Email: paul.lamonica@barrons.com
