The S&P 500 hit a new high last week. The index was trading at almost 4,250 points. This is an important level from a fundamental and technical point of view. Companies from the real sector continued to grow, which provided significant support to the indicator. We have a positive view of the market and believe that the S&P 500 may surpass the 4,500 mark by the end of the year. Significant interest last week was also focused on the Nasdaq 100, which has lagged behind the broader market since the beginning of the year under the canopy of risks associated with accelerating inflation expectations. The Nasdaq 100 came close to the 14,000 mark. The indicator approached this level for the third time since the beginning of the year.
Amid accelerating inflation expectations, investors have begun to shift from rising tech stocks to stocks of companies that were hit hard by the pandemic last year. Since the beginning of the year, this particular asset class has been demonstrating the best dynamics. Now many investors are starting to ask the question: are cyclical stocks too expensive in relation to the tech sector? We believe that stocks in companies that suffered a lockdown last year still have upside potential, but the tech sector’s lag is an excellent opportunity to take a closer look at fundamentally strong issuers. We are not afraid of inflation and consider it a temporary factor that must accompany the significant growth of the American economy after the pandemic.
Inflation data for May was released on Thursday. The statistics came out worse than expected, but the data did not greatly exceed market expectations. The inflation rate accelerated from 4.2% in April and was the highest in more than 12 years – since August 2008. The market forecast estimated the rise in consumer prices in May at 4.7%. In detailing the report, it becomes clear that the share of one-off factors exceeds the overall inflationary background. Many economists attributed the spike in inflation last month to a sharp rise in the price of used cars and trucks, which jumped more than 7%. Investors greeted the May data optimistically with the purchase of assets. Fears of accelerating inflation have put pressure on the stock market in the past few months. Many investors are worried that the spike in price increases will drive up spending by companies and also force the US Federal Reserve to start rolling back stimulus.
The most important event this week will be the Fed meeting on Wednesday. The market consensus assumes that the rate will remain at the current level. We believe that the American regulator will not raise the key rate this or next year, however, we assume that the regulator’s representatives will start signaling that they are thinking of starting to cut the buybacks this fall. Nevertheless, we believe that the Fed will continue to adhere to a fairly loose monetary policy over the medium term. This week it is also worth paying attention to the meeting of the leaders of Russia and the United States on Wednesday. Positive news could trigger a decrease in the geopolitical premium of Russian assets. The Russian market looks quite attractive compared to the indices of other emerging markets.