June CPI On Deck But Keep An Eye On The Earnings Ball

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 Comments from Fed Chair Powell over the last two days have rekindled market expectations for rate cuts even though Powell, in rather plain English, shared he was not signaling anything when it came to monetary policy. Those market vibes helped push the S&P 500 and Nasdaq Composite higher, which were also spurred on by the 40% year-over-year jump in June quarter revenue reported by Taiwan Semiconductor (TSM). Following lifted June quarter guidance from Corning (GLW) earlier this week was the latest confirmation point for AI and data center demand. Rounding things out, Bloomberg reported Apple (AAPL) expects to ship 90 million iPhone 16 models in 2H 2024, an 11% increase compared to iPhone 15 volumes shipped in 2H 2024. Why? The company’s thinking is based on expectations for Apple Intelligence. Findings from research firm Canalys showed the PC market rebound continuing in the June quarter, with Apple taking some market share from other vendors. But as Canalys shares,  AI along with the expected Windows 11 refresh cycle is expected to drive continued growth in the PC market over the coming four quarters. The wind-up? Both the S&P 500 and Nasdaq Composite are even deeper in overbought territory with relative strength readings above 80. Should this morning’s June CPI report show further progress when it comes to inflation, we could see the market push higher again fueled by rate-cut optimism. However, past a certain point, the market’s valuation of 23.1 expected 2024 EPS will come to the forefront of investor thinking. In our view, this will place a lot of pressure on 2H 2024 earnings expectations for the S&P 500. We’d remind you that over the last 22 years, the S&P 500 peaked at 24.0x current year EPS. To put it plainly, to see more P in the S&P 500’s P/E ratio, we will need to see more E from that basket of companies in 2H 2024 than the market currently expects. If the start of the June quarter earnings season suggests that may not be the case, a repeat of the April fall in the market is a potential scenario. We’re not ones to tell you what to do, but while folks are enjoying the continued move in some of our targeted exposure models, like Artificial Intelligence and the CHIPs Act, maybe they should revisit and become familiar with the Market Hedge as well.  More By This Author:What Grade Would You Give The Fed?
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