Stocks’ red-hot rally hit choppy waters this week, with the S&P 500 dropping ~2% over the past several days. But brand-new inflation data suggests the rally should resume in June.
This morning, April’s official Personal Consumption Expenditures (PCE) report was released. And it showed that the U.S. Federal Reserve’s preferred inflation metric resumed its decline last month.
Specifically, core PCE – the inflation rate excluding volatile food and energy prices – dropped from 2.8% to 2.75% in April.
This latest batch of data shows that last month, core inflation rates resumed their decline after flatlining in March.
And that’s a bullish development because it adds further support for the Fed’s first rate cut.
Inflation Vs. Stocks: What to Expect As Summer Nears
Recall: Ever since the central bank stopped hiking rates in the summer of 2023, the stock market has see-sawed on expectations for the Fed’s next interest rate move.
Indeed, throughout 2023’s third quarter, the market crashed on fears that reinflation trends would force the Fed to hike rates again. Then, from late 2023 into early 2024, stocks soared as inflation resumed its decline and investors became hopeful about rate cuts.
Though, thanks to resurging reinflation trends, those rate-cut hopes turned back into rate-hike fears last month. And as a result, stocks crashed.
But over the past few weeks, reinflation trends have eased. And instead, inflation has resumed its decline, as evidenced by the renewed drop in the core PCE rate reported just this morning.
So, if stocks follow the same pattern they have been – and we expect they will – this renewed disinflation should lead stocks to keep on rallying throughout the summer.
The Final Word
We believe inflation rates should keep dropping for the next few months.
As they do, investors will likely grow more hopeful about future rate cuts – and stocks should soar.
So, despite the market’s troubles this week, we’re confident that stocks are actually preparing for a big summer rally.
And that means it’s time to get positioned for those incoming gains.
But how do you know which stocks are primed to soar the most?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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