SP 500 Forecast
The July SP 500 forecast is now available. The S&P 500 closed June at 3,785, down 400 points from the previous month. Inflation fears, supply-and-demand disruptions, and rising oil and commodity prices are pressuring the markets. Since the Fed raised interest rates by 75 basis points on June 15, the chance of two quarters in a row with negative growth has doubled. This makes it more likely that the economy will go into a downturn.
What Is Affecting the Markets?
After the S&P 500’s worst half-year performance since 1970, earnings season will be a key test for the market. The direction of stocks will be largely determined by second-quarter earnings as rate hikes and inflation reflect the growth slowdown. This slowdown is worse than expected due to the Ukraine war and China’s zero COVID policy. Going forward, earnings should drive stock prices more than macro.
Consumers are concerned about rising gas and food prices. The Consumer Confidence Index in June was the lowest since February 2021. The most recent decline indicates weaker growth in 2022 and a growing risk of recession by the end of the year. However, job creation and wage growth tell a different story. Despite rising prices, workers were able to spend due to strong job and wage growth in the first half of the year. Even though job growth is expected to slow, it is also expected to pick up until the end of the year, which will make people feel better about spending and boost their confidence.
Thus, markets will be volatile due to economic uncertainty. As a result, our model predicted a sideways market with a slight downward trend.
When Inflation Rises, How to Invest and Profit
The stock market has been volatile with the Fed planning to raise interest rates and the economy showing signs of weakness. Expect more market volatility as market participants decide if the economy can withstand higher interest rates without contracting. Expect more rotation in the stock market, especially from goods-oriented to service-oriented companies. Consumer staples, utilities, and healthcare do well when the economy slows. Inflationary markets favor value stocks and commodities. Value stocks have high earnings relative to their current share price. However, commodity prices are highly volatile. To succeed, you must pick stocks carefully.