Stock Market

The S&P 500 and Nasdaq Just Hit Record Highs. What Comes Next?

Investors to keep close eye on inflation numbers as Wall Street hopes for a continued Fed-induced rally

Source: shutterstock.com/Lemonsoup14

The stock market has enjoyed a notably strong year in 2024, evident from both the S&P 500 and Nasdaq Composite repeatedly breaking their respective all-time highs. At the time of this writing, both indices are trending around their highest level ever following the release of a promising Consumer Price Index (CPI) inflation report.

Indeed, the Nasdaq surged about 1.4% today, racing past its previous peak dating back to March. This marks the seventh time the tech-centric index has seen a new high in 2024, up more than 13% year-to-date (YTD).

It’s a similar story for the S&P 500, which is up about 1.1% today, pushing it over its own March high. As of last Friday, the S&P concluded its “third straight week of gains” — its longest rally since February.

Perhaps the most impressive aspect about stocks’ performance this year is that indices are already back up even after a miserable April. Indeed, disappointing GDP and inflation readings pushed stocks down for nearly the entire month of April, slimming their gains for the year substantially. Both the Nasdaq and S&P shed more than 4% in April.

Despite the slump, it seems the bulls are back on parade. Indeed, both indices have reclaimed their April losses and more in just the two weeks since the start of May.

Will the Stock Market Continue to Hit New All-Time Highs?

The age-old adage “don’t fight the Fed” has been particularly accurate this year. Indeed, economic data has been one of the most important drivers of equities in 2024, largely out of consideration for the Federal Reserve’s monetary trajectory.

Despite plans for three rate cuts in 2024, the central bank has kept its finger off the trigger due to the generally disappointing nature of economic data — especially inflation.  

After making tremendous disinflationary progress in 2023, prices have remained elevated this year, albeit at a slightly more manageable level than in the years immediately following the pandemic.

Because of this, the Fed has remained steadfast in its commitment to keeping interest rates elevated until price growth is back down. Inflation has repeatedly come out hotter than expected the past four months, forcing the Fed to keep pushing back its long-awaited rate cuts.  

As mentioned, today’s rally is mostly a product of the mildly encouraging CPI report, which gave many traders hope that rate cuts may come this year after all. Many in the market have pegged September for the first rate cut, off the back of the recent CPI report. This indicates that whether stocks continue to reach new all-time highs may be predicated on inflation — and interest rates — coming down.

In that regard, not everyone’s on the same  page. Indeed, Aptus Capital Advisors Portfolio Manager John Luke Tyner believes investors may have jumped the gun on the CPI reading:

“We’d caution that it is just one print (that is still notably above target) coming off the back of three hot prints to start the year […] We’d suspect the Fed will need to continue to see the downward trend in inflation [resume] before touting rate cuts […] All in all, one good print in the midst of several bad will help calm markets, but likely does little in terms of significantly increasing the likelihood of faster/ more cuts.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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