A rally that lifted US stocks from the brink of a bear market faces an important test next week, when consumer price data offers insight on how much more the Federal Reserve will need to do in its battle against the worst inflation in decades.
Despite a rocky week, the S&P 500 is still up by more than 5 per cent from last month's lows, when the benchmark index extend its decline to nearly 20 per cent from its all-time high. The index was recently down about 14 per cent from its January 3 record after losing 1 per cent in the past week.
More upside could depend on whether investors believe policymakers are making progress against surging prices. Signs that inflation remains strong may bolster the case for more aggressive monetary tightening, perhaps spooking a market battered by worries that a hawkish Fed could deal a serious blow to US growth.
“This market is likely to remain rangebound until we get a meaningful move lower in inflation,” said Mona Mahajan, senior investment strategist at Edward Jones, which currently favours large-cap stocks over small-cap, given the ability for larger companies to absorb higher input and wage costs. “Clearly, the print next week is going to be key.”
The consumer price index for the 12 months through April rose 8.3 per cent, down from an 8.5 per cent annual rate reported in the prior month, which was the largest year-on-year gain in 40 years.
Friday's inflation report for May is one of the last key pieces of data before the Fed's June 14-15 meeting, at which the central bank is widely expected to raise rates by another 50 basis points.
If inflation is “continuing to be a problem, the Fed may not have the option of coasting later this year”, said Paul Nolte, portfolio manager at Kingsview Investment Management. “The higher the interest rates, the more the struggle for the market.”
Mr Nolte has lightened positions in equities broadly in the portfolios he manages, especially in growth stocks, and raised cash levels, pointing to factors such as still-lofty stock valuations.
The CPI report comes as investors gauge how the 75 basis points of monetary tightening delivered by the Fed this year so far is affecting growth. Employment data released on Friday showed that US employers hired more workers than expected in May and maintained a strong pace of wage increases, signs of strength that could keep the Fed on an aggressive monetary policy tightening path.
Meanwhile, gloomy views from several business leaders, including JPMorgan Chase's Jamie Dimon and Tesla's Elon Musk, have weighed against hopes that the central bank can cool inflation without hurting the economy.
Mr Musk said in an email to executives that he has a “super bad feeling” about the economy and needs to cut about 10 per cent of jobs at the electric carmaker, Reuters reported on Friday.
Investors' view of inflation is critical to how they value equities, as higher prices have typically spurred the Fed to raise interest rates, with higher bond yields in turn reducing the value of future corporate profits. Rising prices also raise costs for businesses and consumers.
The S&P 500 trades at around 18.7 times its trailing 12 month earnings, a rich valuation compared to other inflationary periods that suggests investors believe the current level of price increases may not last, according to Jeff Buchbinder, equity strategist at LPL Financial.
LPL believes inflation will eventually fall this year and that companies have solid earnings momentum. The firm's year-end target on the S&P 500 is between 4,800-4,900, which at the low end stood about 16 per cent above the index’s level as of Friday afternoon.
Others have been less optimistic. Morgan Stanley strategists this week called the latest rebound just a “bear market rally”, and, citing negative trends for earnings and economic indicators, projected the S&P 500 would drop to around 3,400 by mid-August.
“There is consensus agreement that we have likely seen the high prints or the peak inflation numbers in the rear-view mirror,” said Art Hogan, chief market strategist at National Securities.
“If that proves to not be true … that is going to tip over the apple cart for markets.”
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Starring: Eric Ruffin, Chloe Levine
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Ads on social media can 'normalise' drugs
A UK report on youth social media habits commissioned by advocacy group Volteface found a quarter of young people were exposed to illegal drug dealers on social media.
The poll of 2,006 people aged 16-24 assessed their exposure to drug dealers online in a nationally representative survey.
Of those admitting to seeing drugs for sale online, 56 per cent saw them advertised on Snapchat, 55 per cent on Instagram and 47 per cent on Facebook.
Cannabis was the drug most pushed by online dealers, with 63 per cent of survey respondents claiming to have seen adverts on social media for the drug, followed by cocaine (26 per cent) and MDMA/ecstasy, with 24 per cent of people.
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October 18 – November 2
Opening fixtures
Friday, October 18
ICC Academy: 10am, Scotland v Singapore, 2.10pm, Netherlands v Kenya
Zayed Cricket Stadium: 2.10pm, Hong Kong v Ireland, 7.30pm, Oman v UAE
UAE squad
Ahmed Raza (captain), Rohan Mustafa, Ashfaq Ahmed, Rameez Shahzad, Darius D’Silva, Mohammed Usman, Mohammed Boota, Zawar Farid, Ghulam Shabber, Junaid Siddique, Sultan Ahmed, Imran Haider, Waheed Ahmed, Chirag Suri, Zahoor Khan
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More from Rashmee Roshan Lall
Chinese Grand Prix schedule (in UAE time)
Friday: First practice - 6am; Second practice - 10am
Saturday: Final practice - 7am; Qualifying - 10am
Sunday: Chinese Grand Prix - 10.10am
The Perfect Couple
Starring: Nicole Kidman, Liev Schreiber, Jack Reynor
Creator: Jenna Lamia
Rating: 3/5
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Tottenham's 10 biggest transfers (according to transfermarkt.com):
1). Moussa Sissokho - Newcastle United - £30 million (Dh143m): Flop
2). Roberto Soldado - Valencia - £25m: Flop
3). Erik Lamela - Roma - £25m: Jury still out
4). Son Heung-min - Bayer Leverkusen - £25m: Success
5). Darren Bent - Charlton Athletic - £21m: Flop
6). Vincent Janssen - AZ Alkmaar - £18m: Flop
7). David Bentley - Blackburn Rovers - £18m: Flop
8). Luka Modric - Dynamo Zagreb - £17m: Success
9). Paulinho - Corinthians - £16m: Flop
10). Mousa Dembele - Fulham - £16m: Success
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
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MATCH INFO
What: Brazil v South Korea
When: Tonight, 5.30pm
Where: Mohamed bin Zayed Stadium, Abu Dhabi
Tickets: www.ticketmaster.ae
hall of shame
SUNDERLAND 2002-03
No one has ended a Premier League season quite like Sunderland. They lost each of their final 15 games, taking no points after January. They ended up with 19 in total, sacking managers Peter Reid and Howard Wilkinson and losing 3-1 to Charlton when they scored three own goals in eight minutes.
SUNDERLAND 2005-06
Until Derby came along, Sunderland’s total of 15 points was the Premier League’s record low. They made it until May and their final home game before winning at the Stadium of Light while they lost a joint record 29 of their 38 league games.
HUDDERSFIELD 2018-19
Joined Derby as the only team to be relegated in March. No striker scored until January, while only two players got more assists than goalkeeper Jonas Lossl. The mid-season appointment Jan Siewert was to end his time as Huddersfield manager with a 5.3 per cent win rate.
ASTON VILLA 2015-16
Perhaps the most inexplicably bad season, considering they signed Idrissa Gueye and Adama Traore and still only got 17 points. Villa won their first league game, but none of the next 19. They ended an abominable campaign by taking one point from the last 39 available.
FULHAM 2018-19
Terrible in different ways. Fulham’s total of 26 points is not among the lowest ever but they contrived to get relegated after spending over £100 million (Dh457m) in the transfer market. Much of it went on defenders but they only kept two clean sheets in their first 33 games.
LA LIGA: Sporting Gijon, 13 points in 1997-98.
BUNDESLIGA: Tasmania Berlin, 10 points in 1965-66
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
ICC Women's T20 World Cup Asia Qualifier 2025, Thailand
UAE fixtures
May 9, v Malaysia
May 10, v Qatar
May 13, v Malaysia
May 15, v Qatar
May 18 and 19, semi-finals
May 20, final
UAE currency: the story behind the money in your pockets
UAE currency: the story behind the money in your pockets
