Yet many investors have persistent concerns that higher inflation will force the Federal Reserve to stop buying assets or even raise interest rates sooner than expected.
While worries may be lingering in the background, they’re not being reflected in stock prices right now.
Meanwhile, bullishness among individual investors about the six-month outlook for stock prices fell in late May to the lowest level since October 2020, according to the American Association of Individual Investors’ weekly sentiment survey.
The Federal Reserve is scheduled to convene for one of its eight annual meetings on June 15-16.
At some point in the next few months, Fed policymakers will need to shift their messaging, notes Jay Hatfield, founder and CEO of Infrastructure Capital Advisors.
“The idea that they’re not going to taper and inflation is transitory is not sustainable,” Hatfields says.
“Fed watching is always critical,” Hatfield says.
Ernesto Ramos agrees that the messaging out of the central bank will begin to shift in the months ahead.
For now, traders only see a 7% likelihood of a rate hike by year-end, and policymakers have promised to keep rates low for the foreseeable future.
Speaking of inflation, the market will get a peek at the Fed’s preferred measure of prices—the May Personal Consumption Expenditure Index —on June 25.
Neither Ramos nor Hatfield believe that higher inflation is going to be temporary, as the Fed has repeatedly promised.
Even sooner, Ramos says the monthly jobs report for May, scheduled for release on June 4, could be “a pretty interesting day” for the market.
A strong labor market, however, could drive yields on the benchmark 10-year Treasury bond higher and cause stock market investors to continue to favor value stocks in lieu of growth stocks, Ramos notes.
Meanwhile, Hatfield says he’s monitoring the price of oil, which he sees going to as high as $80 a barrel by summertime from the current mid-$60 range.
Inflation remains the key issue for the market, and inflation jitters are likely to keep the S&P 500 in a pretty tight range until early July, Hatfield says.
Finally, Ramos says the market is “ripe for some volatility” in the summer, and potentially a market correction, though investors can’t predict the cause right now.
Ramos recommends holding off on making any moves until at least the jobs report on June 4.