Futures for stock indexes as of early Friday morning show that the S&P 500 SPX could go down again. The Wall Street barometer has dropped 1.33 percent in the last two days due to a number of disappointing earnings reports from the technology sector. These reports made people less optimistic about the future prospects for software and hardware companies that work with AI.
Concerns about rising interest rates on loans have also made people feel bad. The 2-year Treasury yield BX:TMUBMUSD02Y went back above 5% in the middle of the week as investors took in more comments from Federal Reserve officials saying that inflation is still too high to think about lowering interest rates soon.
That fear of inflation will be at the centre of the last session of May on Friday at 8:30 a.m. Eastern, when the personal consumption expenditure price index for April is released.
Tom Lee, head of research at Fundstrat, says that the latest shakeup in the stock market is good news because it makes it very likely that the PCE report will lead to a rally in stocks.
Lee says that the S&P 500 has gained an average of 0.3% in one day, where 83% of the time it has been right, and an average of 0.8% over the next five days, where 75% of the time it has been right.
“Those are pretty good price changes, and they show that markets are generally calm after PCE data comes out,” he says.
When the market falls before the PCE report, on the other hand, the returns are even better.
The S&P 500 has been down for five days before inflation data four times since the end of 2022. The S&P 500 has gained four out of the last five sessions. It went up 0.8% in February 2023, 3% in May 2023, 0.2% in September 2023, and 5.3% in October 2023.
Now, it is reasonable to question whether those gains were simply the result of the PCE print coming in cooler than expected and thus bolstering optimism over Fed interest rate cuts. But Lee finds that three out of those four times the closely-watched month-on-month core PCE was actually hotter than consensus forecasts.
So, even if the PCE data on Friday is a little bit higher than hoped, recent history suggests stocks could rally. Emphasis on ‘little bit’.
Given all that, Lee reckons the consolidation for stocks over the past 10 days is likely ending, with June a positive month for five reasons.
First, the historic median gain for the S&P 500 in June when April has been negative but May positive is 3.9%, so there’s a seasonal tailwind. Second, there will be favorable data points, including today’s PCE, the New Yok Fed’s inflation expectations survey on June 10th, and two days later the U.S. consumer price index for May.
Third, New York Stock Exchange Margin Debt data shows investors are still using low leverage. Fourth, there’s still $6 trillion dollars of cash on the sidelines. And finally, earnings season shows that AI spending and transformation is still strong.
“And if the seasonal median gain of +3.9% is correct, the S&P 500 could possibly touch 5,500 during the month,” Lee concludes.
Markets
Futures on the U.S. stock market ES00, -0.29% YM00, -0.14% NQ00, -0.49% are falling because benchmark Treasury yields BX:TMUBMUSD10Y are going up early Friday. The dollar index DXY hasn’t changed much. The price of oil CL.1, -0.01% has gone down, and the price of gold GC00, -0.05% is now around $2,240 an ounce.
| Key asset performance | Last | 5d | 1m | YTD | 1y |
| S&P 500 | 5235.48 | -0.61% | 3.38% | 9.76% | 24.03% |
| Nasdaq Composite | 16,737.08 | 0.01% | 5.66% | 11.50% | 27.75% |
| 10-year Treasury | 4.559 | 8.90 | 4.10 | 67.81 | 85.96 |
| Gold | 2363.7 | 1.22% | 2.32% | 14.09% | 20.33% |
| Oil | 77.6 | -0.26% | -0.50% | 8.79% | 7.97% |
The commotion
When the personal consumption expenditure price data for April comes out at 8:30 a.m. Eastern, everyone will be looking at it. The Fed prefers the core reading, which takes out volatile items like food and energy, and shows that inflation is rising 0.2% month-over-month. This is less than the 0.3% rise seen in March. The annual core growth rate is expected to stay at 2.8%.
The Chicago Business Barometer for May is another piece of U.S. economic data that will be released on Friday at 9:45 a.m.
After the former president was found guilty on all 34 counts in his “hush-money” trial, shares of Trump Media & Technology DJT, +1.41% are down 6% before the market opens.
Gap stock GPS, +4.02% is up 23% after the clothing store turned a profit and raised its guidance.
Dell Technologies stock DELL, -5.18% is down 14% after management warned of falling margins. MongoDB shares MDB, -7.18% are down 24% after the software group gave cautious guidance.
A survey released Friday showed that China’s manufacturing sector shrank in May, which was a surprise.
The chart
Bloomberg looked at speeches given by Federal Reserve officials and found that lately they have been sounding more like “hawks.”
But Apollo’s chief economist, Torsten Sløk, says, “Note how the model never predicted rate cuts in 2024.” Instead, the Fed has been less “hawkish” in 2024 than it was in 2022 and 2023.
In the end, Sløk says, “This Fed sentiment model using data going back to 2009 shows that Fed communication continues to favour Fed hikes rather than Fed cuts.”
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
| Ticker | Security name |
| NVDA, -3.77% | Nvidia |
| GME, +6.45% | GameStop |
| TSLA, +1.48% | Tesla |
| AMC, -6.00% | AMC Entertainment |
| FFIE, +27.26% | Faraday Future Intelligent Electric |
| DELL, -5.18% | Dell Technologies |
| NIO, +9.53% | Nio |
| DJT, +1.41% | Trump Media & Technology |
| AAPL, +0.53% | Apple |
| AMD, +0.97% | Advanced Micro Devices |
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