Stocks bolted to new all time highs last week thanks to better than expected CPI inflation data. With that bond rates fell and the S&P 500 (SPY - Get Rating) made new highs just above 5,300.

Now investors are treading water at the highs awaiting the next round of signals that could change the outlook for inflation, and correlated Fed rate cut decisions. So, it’s in our best interest to review the roll call of coming economic announcements and prepare for what comes next.

That and more awaits you in this week’s Reitmeister Total Return commentary below…

Market Commentary

In the past, we talked about waiting for the first Fed rate cuts is akin to a car idling at a red light. You know it will soon turn green and thus ready to punch the gas pedal to speed ahead.

That still very much fits in with the current market outlook. The economic catalyst of lower rates will beget higher earnings growth and, naturally, higher share prices. Thus, investors do not want to fall asleep at the wheel if that first cut is not far off in the distance.

On the other hand, if a bad rash of inflation data comes out, further delaying that first rate cut, then yes, stocks will sink lower in the near term. So, it is in our best interest to review the looming economic calendar for anything that could influence stock prices higher or lower:

5/22 Fed Minutes: This is typically a benign event since the post meeting press conference from Powell, plus numerous Fed official speeches, gives ample color commentary to the rate hike decision. Occasionally we find more dissent noted in their debates which can be the start of the turning of the tide. A surprise dovish or hawkish tilt would indeed have market moving impact.

5/31 PCE: This is the Fed’s favorite measure of inflation. If it corresponds with improvements found in last week’s CPI report, then could provide a nice boost for stocks. On the flip side, bad news here will have stocks pulling back from recent highs.

6/3 ISM Manufacturing: The first of the big three economic reports that kick off each month. This area has been weak for a long time. Oddly, investors would not want this to heat up as it would signal inflationary pressure. So, a 50 or below reading would be the most welcome news.

6/5 ISM Services: This large swath of the economy has been heading lower for 3 straight readings with the first sub 50 showing in early May which helped propel stocks higher (because it equates with lower inflationary pressure). So here the goldilocks reading would be around 50 to not stoke fears of sinking into recession nor heating up to push inflation higher.

6/6 Government Employment Situation: No one is worried about unemployment at this time. The main fixation from this monthly report will be the results for Average Hourly Earnings (aka wage inflation). This aspect has been far too sticky, which the Fed watches carefully. Gladly there were signs of easing in the early May report and the hope is that continues in this early June reading.

If the sum total of above shows an easing of inflation, then expect bond rates to tick lower and stock prices to rally a notch more.

Conversely, if inflation remains stubbornly elevated, then this recent rally will give way to the next pullback to at least the 50 day moving average. And maybe the 100 day.

Moving Averages: 50 Day (yellow) @ 5,165 > 100 Day (orange) @ 5,048 > 200 Day (red) @ 4,746

All the above is just about the short term outlook for stocks. Over the long haul it is a bull market til proven otherwise. And that would require serious fears of a recession forming…which would beget lower inflation and the Fed rate cuts. So not much to truly fear at this time.

The point is to be fully invested with emphasis on the best stocks trading at reasonable prices. The POWR Ratings continues to be our best friend in that regard.

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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 fell $0.15 (-0.03%) in after-hours trading Tuesday. Year-to-date, SPY has gained 12.14%, 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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