Daily Brief - Market Rally Rescues S&P 500

TLDR: In the final stretch of May, US stocks experienced a late-day rebound as early session declines driven by megacaps were counterbalanced by dip buying.

Despite briefly dipping below 5,200, the S&P 500 closed above this level, with all major groups except technology advancing. The Dow Jones rose 1.5%, reaching its highest point since November, while the Nasdaq 100 remained flat after an almost 2% drop on Friday, marking its best month in 2024.

This late rally enabled the S&P 500 to achieve its best month since February, with a 5% gain. However, BofA strategists caution that the outperformance of value stocks over growth stocks could be the next “pain trade” as other sectors begin to catch up.

The latest core PCE data showed a 0.2% monthly increase, indicating slow progress in combating inflation. Overnight index swaps now fully price in a rate cut by December, with a possibility of an earlier move in September.

However, the base effect might make the Fed hesitant to cut rates, as last year's rapid progress on inflation makes this year's modest improvements seem even slower by comparison.

We might just be somewhat stuck in this final phase of addressing inflation.

Scenario Spotlight: What's next for the SPX?

The chart above shows the historical 1-month response from the S&P 500 based on the previous 75 instances when the index was up 5% in a month, while the Tech sector rose 10% over the same horizon.

Market Movers: S&P Sector Rotation

_Here are the top and bottom performing sectors on 1-month horizon, post a 5% rally in the S&P 500 and a 10% rise in the S&P Tech sector over a month: _

Top 3 Performing Assets: S&P Consumer Discretionary: 2.12% S&P Technology: 1.23% S&P Industrials: 0.95%

Bottom 3 Performing Assets: S&P Consumer Staples: 0.51% S&P Utilities: -0.34% S&P Telecom: -0.55%

Tune into tomorrow's brief to discover the specific stock winners and losers...

Earnings Spotlight: Bath & Body Works reports tomorrow

The upcoming report from Bath & Body Works (BBWI) is anticipated to reveal quarterly earnings of $0.33 per share, maintaining the same level as the previous year. Analysts forecast revenues of $1.37 billion, which represents a 2.1% decrease year over year.

Over the last 30 days, the consensus EPS estimate for the quarter has been revised upward by 3.1%. UBS has maintained a Neutral rating with a price target of $52.00, expecting the EPS to align with forecasts and support the 2024 outlook.