Financial sectors are growing increasingly optimistic.
Originally published in CNN Business' Before the Bell newsletter, available for subscription here. You can also listen to the newsletter by clicking the same link.
The S&P 500 index has surged by nearly 15% this year and achieved 30 new record-high closures. A combination of strong corporate earnings and artificial intelligence boosted stocks at the beginning of the year, even with a series of unexpectedly high inflation reports that sparked concerns the Federal Reserve might delay interest rate cuts in 2024.
May's fresh data showed that inflation is declining once more and is approaching the Federal Reserve's 2% goal. At its June policy meeting, the central bank kept rates unchanged and prepared a single cut for 2024. As traders were previously unsure about the Fed enacting any monetary policy adjustments in 2024, they now bet on two to three cuts, according to the CME FedWatch Tool.
The current environment of cooling inflation and impending rate cuts encourages investors to increase their bullish bets. Goldman Sachs raised its end-of-year target for the benchmark index to 5,600 from 5,200 on Monday, attributing this to a favorable outlook for corporate profits. This would represent a 2.3% advance from the current closing level.
Evercore ISI adjusted its price target to 6,000 for the S&P 500, a shift from its previous, more pessimistic 4,750 target. Achieving this level would signify a 9.6% jump from the current closing level.
"The combination of slowing inflation, a Fed intent on reducing rates, and steady growth has supported ‘Goldilocks,’" wrote Julian Emanuel, a senior managing director at Evercore ISI, in a Sunday note. "There's room for the rally to continue."
The market has been unique this year due to its unusually low volatility. Stock sell-offs have been brief and mild. The S&P 500 has experienced its longest stretch of trading days without a 2% or more decline since February 2018, according to SoFi data as of June 12.
While low volatility may seem like a good thing, it carries potential risks. It could signify that investors are taking on more risk in their portfolios due to excessive optimism and might be caught off guard if the situation changes.
Numerous risks could disturb markets in the upcoming months. A large portion of the S&P 500 index's returns is linked to the so-called Magnificent Seven mega-cap tech stocks, making the market overly dependent on a handful of names for continued growth.
Stock prices may falter leading up to the US presidential election in November. Some investors express concerns that despite positive economic data, a recession might still be likely in 2024 or the following year.
Although setting a more optimistic baseline target, Goldman Sachs cautioned that the S&P 500 index could conclude the year at 4,800, a 12.3% drop from the current levels, if economic growth data deteriorates and markets factor in higher odds of a recession.
Oddities in Pork Prices: Bacon Prices Soar, Ham Prices Slump
Shoppers may have noticed some peculiarities in the meat section last month: Bacon prices are skyrocketing, while ham prices are not as appealing, as reported by my colleague Danielle Wiener-Bronner.
Bacon's price has risen by 6.9% compared to May 2023 to May of this year, as per inflation data from the Bureau of Labor Statistics. Pork chops increased as well, by 4.6%. However, ham prices have declined, falling by 5.4% overall and decreasing by 6.3% excluding canned varieties.
What accounts for this inconsistency?
Economic experts may recall that prices are influenced by supply and demand. Generally, supply disturbances – such as an oversupply or undersupply – would cause prices of all items to go up or down, consistently.
The disparity must be due to variations in demand, then. And indeed, there is: Demand for domestic pork has increased in recent years beyond the US. However, rising demand, coupled with the same or reduced supply, should cause prices to rise, not fall.
To comprehend this puzzle, one needs to broaden their perspective to long-term retail pricing strategy and food price trends.
Learn more here.
Chinese residents in Florida Outraged by Home Purchase Ban
In response to a return-to-office policy last year, Jin Bian opted to reduce his one-hour commute by purchasing a house closer to the office in Tampa, Florida. However, he subsequently learned that his purchase might lead to imprisonment, as reported by my colleague Samantha Delouya.
"That was genuinely shocking to me. It's just buying property," said Bian, a 31-year-old software engineer originally from Nanjing, China, who has lived in the US for 12 years. "After I found out, I decided not to even look anymore."
Bian and other Florida residents shared their concerns and confusion about the law, passed by Governor Ron DeSantis last year, prohibiting Chinese nationals without US green cards from purchasing property in the state.
Bian and others claim that the rules have caused unease and uncertainty among ethnic Chinese people living in Florida. Some report that the law has harmed their businesses, while others say they are contemplating leaving Florida altogether. The law represents a heightened level of tension between the two largest economies in the world during a US presidential election year.
Lately, Bian has been questioning his life in Florida. He isn't the only one. With the enactment of Florida Senate Bill 264 on July 1, 2023, Chinese citizens without green cards risk facing felony charges and potential jail time if they buy property in the state. This law also applies to property sellers and real estate agents.
Dive deeper into this topic here.
