Will The S&P 500 Index Move Higher In the Last Week of June?
26 Junho 2022 - 1:32PM
Finscreener.org
The first six months of 2022 have
been extremely painful for equity investors as most major indices
have experienced a downward spiral in this period. In fact, the
stock market may close out its worst first half in several decades
in the upcoming week which has set the stage for an era of
volatility and uncertainty.
However, indices may now gain
momentum in the next two weeks due to an oversold market. Several
fund managers also rebalance their portfolios and shift their
investments to take advantage of depressed valuations and changing
market conditions, towards the end of a quarter.
According to
JPMorgan (NYSE:
JPM), the rebalancing of portfolios might drive stocks
higher by 7% in the next week, given the
S&P 500 index is
down 13.7% in Q2 and has declined almost 18%
year-to-date.
Towards the end of Q1, the
S&P 500 index slumped by 10% but the last week of the
quarter saw a rally of 7%. JPMorgan emphasized that cash balances
are at record levels in a period of low liquidity. Add in an
oversold market and substantial shorting activity to the mix and we
can see why the investment bank is optimistic about a short-term
rally.
Even if the equity markets trade
higher in the last week of June, the third quarter has been among
the worst-performing ones historically due to uncertainties
associated with mid-term elections. Data from CFRA suggests the
S&P 500 has declined by 0.5% on average in the second year
of a presidential term after a 1.9% decline in Q2.
If the markets remain at similar
levels at the end of Q2, it would mark the worst first six months
for equities since 1970.
What to expect in the week ahead?
In the upcoming week, there are a
few key economic reports as well as corporate earnings which will
impact the market, especially if companies miss estimates or report
tepid guidance for the upcoming months.
The personal consumption
expenditures data will be released on Thursday. This data includes
the PCE deflator reading and is closely watched by the Fed.
Additionally, ISM Manufacturing data will be released on Friday
while consumer confidence and S&P/Case-Shiller home price
data will be released on Tuesday.
The key catalyst for stock prices
for the second half of 2022 will be the upcoming earnings season.
The major banks will report earnings between July 14 and 15 which
means earnings season takes off in the second week of the next
month. So, equity markets will be extremely volatile in the
following month especially if companies report weaker-than-expected
forecasts.
Interest rates and the S&P 500
While stock indices inched higher
on Friday, bond yields continue to recover from a steep decline.
The
10-year Treasury yield
touched a high of 3.48% on June 14 and stood at 3% last Thursday.
It ended at 3.13% on June 24. Comparatively, the S&P 500
rose 6.4% to close the week at 3,911.
In addition to corporate
earnings, investors will be waiting to see if inflation will
continue to move leading to higher interest rate hikes which is a
perfect recipe for an economic recession.
There is a chance for the Fed to
maintain a hawkish stance and increase yields by 0.75% in July
after a similar hike earlier this month.
In a CNBC interview, George
Goncalves, the head of U.S. macro strategy at MUFG explained, “It’s
a narrative in overdrive. You go from inflation fears, and a 75
basis point hike... to only realize the more the Fed hikes,
eventually they’re going to tip us into recession. All this in a
matter of a week.”
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