The world’s central banks are starting to cut interest rates…
On June 6, the European Central Bank cut its key lending for the first time in five and a half years. It’s now at 3.75%.
Other central banks – including the Bank of Canada and the Swiss National Bank – also recently cut rates.
And now, economic reports suggest that the robust expansion of the U.S. economy could be slowing. As of Wednesday morning, the Federal Reserve’s Bank of Atlanta’s GDPNow model forecast U.S. gross domestic product (“GDP”) to grow 1.5% in the second quarter. That’s down from a 2.6% forecast last month.
Here’s the good news. An economic slowdown would allow the Fed to finally cut interest rates… which will likely fuel a continued bull run through the end of the year.
It’s just one of several factors set to drive more gains ahead. And as I’ll explain today, that means we should look at one part of the market in particular…
We’re now seeing the first signs of slowing growth in the U.S. economy. And we’re seeing more global central banks lean toward cutting rates.
That might sound like bad news. But it tells me we’re actually getting closer to interest-rate cuts here in the U.S.
What’s more, we also have a strong setup for companies to beat analysts’ expectations in the second quarter…
First-quarter earnings season boosted stocks in a big way. Most companies beat analysts’ estimates on both the top and bottom lines.
As I noted earlier, the Atlanta Fed estimates 1.5% GDP growth in the second quarter. But again, that’s down from the 2.6% predicted growth just a month ago… which means if the strength continues, the bar is not high.
These projections set us up for another round of positive earnings surprises in July – if companies continue to beat analysts’ estimates.
Not only that, but July has been a particularly strong month for stocks in all years when the market is up 10% or more through the end of May. And so far, the market is already up 12.7% year to date.
These moves are bullish for U.S. stocks over the next six months. That’s why I believe the S&P 500 Index could end 2024 in a range between 5,600 and 6,000.
That might sound far-fetched. But according to my Power Gauge system, stocks are poised to rise…
At Chaikin Analytics, we use this tool to gather a wide array of investment fundamentals, technicals, and more into a simple, actionable rating such as “bullish,” “neutral,” or “bearish.”
Right now, the recent market action and fundamentals are pointing to continued strength on the Power Gauge.
The chart below looks at the SPDR S&P 500 Trust (SPY) over the past year. This fund – which tracks the broad market – is in a strong uptrend. And as you can see, the Power Gauge remains “bullish” as SPY keeps climbing to new all-time highs…
Importantly, SPY’s Chaikin Money Flow indicator – the first panel below the price chart – has moved deep into the green zone.
That tells us the so-called “smart money” remains optimistic on stocks. And this group continues to buy on any market weakness.
SPY is also back to an “oversold” reading… which is one of our most reliable short-term “buy” signals.
I hope my point is clear… I’m still as optimistic as ever on U.S. stocks.
That said, right now the market is very concentrated. You need to invest in the strongest parts of the market to succeed.
That brings me to one part of the market I expect to soar the most.
I’ve recently talked about the bull market “broadening out” as it marches on…
The most compelling example occurred in mid-December… when more than 90% of the stocks in the S&P 1500 Index closed above their respective 50-day moving averages.
That doesn’t happen often. In fact, it was just the 26th time we’ve seen this signal since 1962. The last time it came up was in May 2020. And as we all know, stocks ripped higher in the ensuing months.
We can look back to see what this means, thanks to the folks at SentimenTrader, run by researcher Jason Goepfert. Longtime DailyWealth readers know this is where Jason puts together all the most critical data on market sentiment. It’s a great resource for investors.
According to analysis from SentimenTrader, two key things stand out about this signal…
- Large-cap stocks were higher 96% of the time six months later and 92% of the time 12 months later.
- Smaller-cap stocks – particularly mid-caps – outperform large caps over those two time frames.
Mid-cap stocks have market caps between $2 billion and $10 billion. They’re mostly lesser-known players. That makes them perfect for this broadening-out phase of the bull market.
The signals are stacking up today…
The U.S. stock market is still the most attractive option for most folks’ money. Even a slowing economy is likely to be a bullish catalyst as the Fed leaps into action… And again, that’s just one reason we should expect more gains ahead.
We want to be invested in stocks – not just this month, but through the end of the year.
Good investing,
Marc Chaikin
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Source: Daily Wealth