Bulls ride cool inflation wave

  • Tech sends S&P and Nasdaq to multiple record highs
  • Bonds rally as 10-year yield hits 11-week low
  • This week: Retail sales, housing starts, Juneteenth holiday

The Fed got what it wanted last week—lower inflation readings—and stock-market bulls got what they wanted, too: more record highs and continued hope for a 2024 rate cut.

In claiming its seventh up week out of the past eight, the S&P 500 (SPX) hit all-time highs every day but Friday, getting its biggest boost on Wednesday after the Consumer Price Index (CPI) showed inflation eased in May. The market gained a little less ground after Thursday’s Producer Price Index (PPI) release:

S&P 500 (SPX), 5/1/24–6/14/24. S&P 500 (SPX) price chart.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest in an index.)

The headline: Stock rally extends amid cooler inflation.

The fine print: Away from the indexes with the biggest exposure to the market’s megacap leaders—the SPX, Nasdaq Composite (COMPX), and Nasdaq 100 (NDX)—last week’s results were mixed. The Russell 2000 (RUT) small cap and the Dow Jones Industrial Average (DJIA) both lost ground, and seven of the S&P 500’s 11 sectors declined.

The number: 60.5%—as of Friday, the market-based odds the Fed will cut rates at its September meeting.1 That was up from 50% just before the release of last Wednesday’s CPI report.

The move: Bonds rallied last week, too. The benchmark 10-year T-note yield posted its biggest weekly decline of the year, falling as low as 4.2% on Friday—its lowest level since March 28.

The scorecard: The Nasdaq 100 (NDX) tech index was the runaway leader last week:

US stock index performance for week ending 6/14/24. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Sector returns: The strongest S&P 500 sectors last week were information tech (+6.4%), real estate (+1.2%), and communication services (+0.9%). The weakest sectors were energy (-2.3%), financials (-2%), and consumer staples (-1.2%).

Stock movers: Avidity Biosciences (RNA) +33% to $38.36 on Wednesday, Urogen Pharma (URGN) +38% to $17.50 on Thursday. On the downside, CoreCivic (CXW) -20% to $11.86 on Tuesday, Quanterix (QTRX) -18% to $14.52 on Thursday.

Futures: Last Monday was the biggest up day of the year (+3.1%) for July WTI crude oil (CLN4), which ended the week up nearly $3 at $78.45. August gold (GCQ4) ended an up-and-down week slightly higher at $2,349.10. Week’s biggest gains: July ethanol (ZKN4) +6.1%, September cocoa (CCU4) +5.9%. Week’s biggest declines: June ether (ETHM4) -7.5%, September hard red wheat (KWU4) -6.3%.

Coming this week

Retail sales highlights a holiday-shortened week:

Monday: Empire State Manufacturing Index
Tuesday: Retail Sales, Industrial Production and Capacity Utilization, Business Inventories
Wednesday: NAHB Housing Market Index (Juneteenth--US markets closed)
Thursday: Housing Starts and Building Permits, Q1 Current Account, Philadelphia Fed Manufacturing Index
Friday: Existing Home Sales, Leading Economic Indicators Index

This week’s earnings include:

Monday: Lennar (LEN)
Tuesday: KB Home (KBH)
Wednesday: America's Car-Mart (CRMT), Manchester United (MANU)
Thursday: Darden Restaurants (DRI), Jabil (JBL), Kroger (KR), Winnebago (WGO)
Friday: Apogee Enterprises (APOG), FactSet (FDS)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

A rally with “everything,” please

While a bullish environment for stocks is often seen as a headwind for bonds, and vice versa, Morgan Stanley & Co. analysts see a possibility that 2024 could turn out to be a positive year for both markets on a global basis.

As they explain, of the 13 times since 1988 the Fed cut rates over the course of the year, bond yields fell (i.e., bond prices rose) and stocks rallied 43% of the time.2 During these periods, stock returns averaged 18% while bond yields fell more than one percentage point. Such “everything” rallies, the analysts note, often occur in the macro environment they expect to unfold, characterized by “benign growth” and Fed cuts.

This is the opposite of what markets experienced in 2022, when the correlation between stock and bond returns were high because inflation was elevated even though growth was sluggish. The result: Bonds sold off on expectations of higher rates, and stocks sold off on poor earnings.

Today, the analysts contend that global growth can be robust while inflation continues to cool, which could turn the 2022 scenario on its head: Bonds could rally on expectations for lower rates, while stocks could gain on strong earnings revisions.


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on X (Twitter), @ETRADE, for useful trading and investing insights.

1 CMEGroup.com. FedWatch Tool. 6/14/24.
2 MorganStanley.com. Why an ‘Everything Rally’ is Still Possible. 6/2/24.


What to read next...

What’s the trading prescription for a healthcare stock after its retreat to a multi-month low?

The major indexes were mixed last week even though some hit new record highs.

Elevated options volatility and a large put trade draw attention to a “ho-hum” stock.

Looking to expand your financial knowledge?