UBS says that U.S. stocks seem to be back on track to hit new highs, even if there are delays due to unexpected inflation or the Federal Reserve’s upcoming two-day policy meeting.
Jason Draho, head of asset allocation at the chief investment office of UBS Global Wealth Management, said that a low reading from May’s consumer-price index, which comes out on Wednesday, would “likely be sufficient for investors to remain confident in the disinflation outlook.” This would be similar to April’s 3.4% headline annual reading.
“A big upside beat like those in 1Q would have to happen for investors to lose faith in that trend,” Draho wrote in a client note on Monday.
Monday was another record close for the S&P 500 index SPX. It hit an all-time high of 5,360.79, following a small drop on Thursday and Friday. Since the beginning of the year, the stock market gauge has now reached its 26th record high point.
On Wednesday, the Fed’s June policy meeting will come to an end, but no rate cuts are expected. The central bank is, however, going to change its “dot plot,” which shows how interest rates are expected to move over the next few months and years.
It was most recently thought that the Fed would cut interest rates three times this year. This number “will almost certainly decline,” Draho said, adding that it will probably be changed to two cuts for 2024 instead of the less than 1.5 cuts that traders are currently pricing in.
Even though the unemployment rate went up a little in May to 4%, Draho still sees good signs for the economy. For example, the 6% rise in air travel from 2023 shows that “consumer spending is slowing,” but it seems to be more on goods than on services.
He said that if the CPI report or the Fed’s meeting on Wednesday were disappointing, it could “slow momentum” for stocks. However, he also said that investors should still be ready for more all-time highs.
The S&P 500’s record tally this year is the most since 2021, when it finished with 70 new all-time highs, according to Dow Jones Market Data. But 1995 is still the best year, with 77 records set that year.
As of Monday, the Dow Jones Industrial Average (DJIA) was up 0.2% and the Nasdaq Composite (COMP) was up 0.4%, making it the 14th record close of 2024. The 10-year Treasury yield BX:TMUBMUSD10Y went up by 4 basis points to 4.468% on Monday.
