I have written numerous commentaries in recent months pointing out that stocks should pull back from the highs. That’s because the economy is too strong…inflation is too high…and therefore it will take longer for the Fed to cut rates.

If you focus on the S&P 500 (SPY) or the NASDAQ it looks like my prediction is wrong. However, if you look at the recent losses for most other indices, including the Russell 2000 in negative territory on the year, then you can see that I am actually right.

This creates a confusing time for investors where each next economic report could hold the key to bolt higher or tumble lower. So, let’s review the upcoming economic calendar and do our best to prepare for these vital announcements.

Market Commentary

So far in June we have seen stronger than expected economic data. Mixed inflation data. And clear statements from the Fed that the 3 rate cuts previously expected is now down to only 1 (and several of the Fed participants predict zero cuts this year).

This created a “Flight to Safety” trade which these days = buy Magnificent 7 stocks.

That is why the S&P 500 dominated by these stocks hit new records while most other indices fell. Meaning the average investor is seeing losses in June with the gains of the S&P 500 being an appealing, but elusive mirage.

What happens next has a lot to do with the next round of economic data and what it tells us about inflation and possibility of rate cuts this year. So, let’s review what is on the menu in the weeks ahead:

6/28 PCE Price Index: As most of you probably know, this is the Fed’s preferred inflation gauge and not the more frequently discussed CPI report. The core reading is predicted to keep cooling with estimates 0.1 to 0.2% below the previous print of 2.8% year over year. This includes a very modest 0.1% month over month increase. Matching these estimates would be a positive for stocks. And conversely, coming in above these readings could kick off a broad pullback.

7/1 ISM Manufacturing: This has been the weak link of the economy for more than a year with services doing most of the heavy lifting. However, the PMI Flash report from last week showed a nice bump in manufacturing activity that could be on display here which is why the estimate for this report stands at 51 vs. 48.7 last month. Investors normally celebrate stronger than expected economic readings…but not when lowering inflation and Fed rate cuts are their primary goal. So, this report would be better towards 50 than the 51 predicted.

7/3 ISM Services: This came in at a fairly growthy 53.8 last time and the PMI Flash report points to something similar on the way. Once again, coming in a notch lower would be better given the primary focus on taming inflation to produce future rate cuts.

7/3 FOMC Minutes: Often this report is a non-event. And sometimes there are interesting clues of the Fed intentions unveiled. My guess is that investors continue to not appreciate the patient resolve of the Fed to keep rates aloft. So I think there is a tad more risk of hawkish details emerging that would have bond rates on the rise and stocks going the other way.

7/5 Government Employment Situation & Average Hourly Earnings: Most signs point to healthy job additions. I think the real key continues to lie in the Average Hourly Earnings component (aka Wage Inflation) which has been far too high…and far too sticky. I assure you Fed officials will be watching this reading closely. Thus, we should be too with hopes that it heads under 4% year over year with the monthly pace closer to +0.2%.

7/11 Consumer Price Index (CPI): Even though the aforementioned PCE report on 6/28 holds a lot more sway with Fed officials, CPI has proven to be a market moving report each month. Plain and simple, we want to see this get closer to 3% on this report and hopefully crack under in August.

These events could have a wide array of outcomes from gung ho bullish to neutral to triggering a pullback or correction like we saw in April. Given that we are in the midst of a long term bull market, then best to assume neutral to bullish in your investment strategy.

Meaning that betting on stock market losses in the midst of a bull market is typically foolish and financially painful. So best to keep your eyes on the long term horizon with the best stocks to excel in the months ahead.

You know what I am going to say next. That those best stocks are found much more easily with emphasis on our POWR Ratings. My favorite of those POWR Ratings stocks are discussed below…

What To Do Next?

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Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

SPY shares rose $1.94 (+0.36%) in premarket trading Friday. Year-to-date, SPY has gained 15.68%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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