U.S. stocks look to be on the road again to record highs — even if there’s a detour posed by surprises on the inflation front or from the Federal Reserve’s upcoming two-day policy meeting, according to UBS.
A tame reading from May’s consumer-price index due out on Wednesday — something akin to April’s 3.4% headline annual reading — would “likely be sufficient for investors to remain confident in the disinflation outlook,” said Jason Draho, head of asset allocation at the chief investment office of UBS Global Wealth Management.
“It would take a sizeable upside beat, similar to those in 1Q, to shake investor confidence in that trend,” Draho wrote in a Monday client note.
The S&P 500 index
SPX
claimed another record close on Monday, ending at an all-time high of 5,360.79, after a slight pullback on Thursday and Friday. The stock-market gauge has now logged its 26th record finish this year, according to Dow Jones Market Data.
Also on deck for Wednesday is the conclusion of the Fed’s June policy meeting, with no rate cuts anticipated. However, the central bank is due to update its “dot plot,” or the projected path of interest rates over the next months and years.
The Fed’s most recent median projection was for three rate cuts this year, which “will almost certainly decline,” Draho said — adding that it will likely get revised down to two cuts for 2024, instead of fewer than 1.5 cuts as currently being priced in by traders.
Read: Stock market faces midweek double whammy with Fed decision following CPI inflation reading
While the unemployment rate inched up in May to 4%, Draho still sees positive signs for the economy, with this year’s 6% pickup in air travel from 2023 showing that while “consumer spending is slowing,” it appears to be more on the goods side of the equation as opposed to services.
The labor market appears to be cooling, but air travel is higher than it was last year.
TSA, UBS
Draho said that any disappointments from the CPI report or from the Fed on Wednesday could “slow momentum” for stocks, but that investors still should brace 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 remains the year to beat, with 77 records logged that year.
The Dow Jones Industrial Average
DJIA
closed up 0.2% on Monday, while the Nasdaq Composite
COMP
climbed 0.4% to clinch its 14th record close of 2024, according to FactSet. The benchmark 10-year Treasury yield
BX:TMUBMUSD10Y
was up 4 basis points Monday to 4.468%.
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