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Originally Published: Jun 17, 2024
Originally Published: Jun 17, 2024 Last Updated: Jun 18, 2024 5 min read

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With inflation continuing to subside, nearly every major stock market index is at or near an all-time high.

Behind the current rally is May's inflation data, which surprised economists upon its release last week. The Consumer Price Index (CPI), which measures the average cost of consumer goods and services purchased by households, remained flat despite expectations of a 0.1% increase. Meanwhile, the Producer Price Index (PPI), a measure of inflation at the wholesale level, unexpectedly fell 0.2% despite a projected 0.1% increase.

In turn, Wall Street is interpreting the indicators as ongoing fuel for 2024's bull market.

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The S&P 500 — commonly used as a benchmark for the broad stock market — set its 30th all-time-high closing price of 2024 on Tuesday, June 18, after setting its 29th last week. The index has gained 15.57% so far this year, and with last week's CPI and PPI prints showing inflation cooling further, revised end-of-year targets for the S&P 500 are looking stronger.

According to Julian Emanuel, a strategist at Evercore ISI, that target could be as high as 6,000. Emanuel increased his year-end target for the S&P 500 from 4,750 to 6,000, making him one of the most bullish analysts on Wall Street. Given that the S&P 500 is trading at 5,481, his projection marks a 9.47% gain for the index in the second half of the year.

But it isn't just the S&P 500 that's continuing to set records in 2024:

  • The Nasdaq closed with four consecutive record highs last week and is currently up 21.3% year-to-date.
  • The US 100, which represents the performance of 103 equity securities issued by the leading 100 non-financial companies listed on the Nasdaq, set its all-time high Monday morning, having gained 5.28% in the past four weeks.
  • And last month, the Dow Jones Industrial Average breached 40,000 points for the first time ever.

The only index seemingly not joining the party is the Russell 2000, which tracks small-cap companies and is up 0.44% so far this year. However, over the past two months, the Russell has mustered a 4% gain, leaving it 20.5% off its all-time high.

Why stock market indexes are breaking records

Much of the current rally is being credited to the increased likelihood of a looming interest rate cut by the Federal Reserve. The Fed's counter-inflation policies have resulted in the CPI coming down from a 41-year high of 9.1% in June 2022 to its current 3.3%. The CME's FedWatch Tool now pins the likelihood of a rate cut at 62.3% during the Federal Open Market Committee's September meeting.

But inflation reduction alone isn't driving the market. Along with other healthy macroeconomic indicators, stocks are pushing the major indexes higher. Unemployment, for example, has now remained below 4% for the longest period since 1967, and the U.S. has seen GDP expansion in 13 of the last 15 quarters.

Between a robust labor market and strong economic output, investor confidence has remained strong all year. The American Association of Individual Investors' investor sentiment survey has shown bullishness outweighing bearishness every week thus far in 2024.

Swelling capital expenditures on AI infrastructure coupled with strong corporate earnings are also contributing to ongoing gains. Second-quarter earnings season wraps up this week, and by and large, it's been a successful one for corporate America, with companies like Broadcom and Nvidia soundly beating estimates by posting revenues of $8.73 billion and $13.51 billion, respectively.

Strong earnings could lead to yet another high. According to financial data company FactSet, Q2 estimated earnings growth for the S&P 500 is 9.0%, which would mark the highest year-over-year earnings growth rate since Q1 2022.

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