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Stocks ended lower on Friday after an early rally fizzled under the weight of heightened concerns about political uncertainty following the US presidential debate. Moreover, while the initial reaction to the weaker-than-expected PCE inflation numbers was very positive, it became a problem later in the day. Members of the Federal Reserve have stressed many times that they need to see several months of sustained declines in inflation before implementing an interest rate cut. Therefore, while the apparent slowdown in inflation is a very positive sign, the timing and pace of monetary policy easing is still far from certain.

Month, quarter and year to date solid

S&P 500 (SPX) fell for the week, snapping a three-week winning streak. Dow Jones Industrial Average (DJIA) and Nasdaq-100 (NDX) also recorded small weekly losses, while the Nasdaq Composite (THEN) produced a minute profit. Despite the turbulence, the major indexes ended June with healthy gains, with the SPX and Nasdaq remaining near all-time highs.

Stock indexes also finished a banner first half of the year, with a 14.5% gain for the S&P 500, over 18% for the Nasdaq Composite and almost 4% for the DJIA. Additionally, the broad market index – the SPX – hit a new monthly high in June, ending in the green for the seventh time in the last eight months.

Short term pain, long term gain?

As stocks show overbought conditions and hold extended valuations amid continued growing economic and political uncertainty, the strong first-half performance signals more gains ahead. Statistically, since 1954, every time the S&P 500 had a double-digit gain in the first half of the year, the index ended the year higher. In these years, the SPX recorded an average annual gain of 25%.

However, there could be more turbulence ahead in the near term, as companies are entering a pre-purchase earnings hiatus. By the end of this week, firms representing over 70% of the S&P 500’s market cap will have to refrain from discretionary buying ahead of the second-quarter reporting season. The temporary pullback in support from share buybacks is poised to increase market sensitivity to downside risks.

Is this the beginning of the Great Revival?

Analysts do not appear to be surprised by the stock’s recent decline, citing it as a gainer among those that have seen significant gains in recent months. That’s why the recent declines were mostly focused on big tech names. However, despite several big-cap and megacap technology market leaders stumbling in the past two weeks, the IT sector continued to lead the market in June, also topping the earnings chart for the quarter and year-to-date.

Up to 30% of this year’s gain in the S&P 500 can be attributed to NVIDIA (NVDA), whose brisk fundraising added over $1.8 trillion to the AI ​​market cap this year. Optimism about artificial intelligence has continued to drive stocks higher in 2024, despite reduced prospects for a Fed rate cut. Communications sector – home of Alphabet (GOOGLE), Meta (META), and Netflix (NFLX) – closely followed the lead of the Technology sector this year. Together with Microsoft (MSFT) and Amazon (AMZN), these tech megacaps are responsible for over 50% of the SPX’s rally this year.

However, in the past month, there has been a notable reversal of some of this year’s laggards, with the Real Estate, Energy and Financials sectors regaining their luster. This week, we could see more inflows into these sectors as investors rearrange their positions following the debate between Donald Trump and Joe Biden. The incumbent’s poor performance in the debate boosted Trump’s chances, increasing the attractiveness of stocks in sectors expected to benefit if he wins the election. However, this does not necessarily mean that tech stocks will suffer as they have become an “all-weather” investment theme in recent years.

Markets are bracing for the jobs data

Meanwhile, economic data continues to deliver mixed data. Revised Q1 2024 GDP came in slightly stronger than expected, although it still reflects a significant slowdown from the fourth quarter. Consumer spending rose less than expected in May, but personal income rose more than economists had previously estimated, supported by strong consumer sentiment that beat expectations in June.

Along with a slowdown in inflation, these data paint a picture of an economy headed for a “soft landing,” increasing the chances of an interest rate cut come September. However, the picture is missing a key component due out this Friday: the all-important labor market report, which also includes data on earnings growth. Although consumers feel pressure from inflation and high interest rates, they will continue to spend as long as their incomes increase. Therefore, some evidence of labor market softening is needed to support expectations for a September rate cut.

Stocks that made the news

¤ Tesla (TSLA) jumped 7% over the past week, with the share price breaking above $200 for the first time in three months. Traders are strengthening positions in the electric vehicle maker’s stock ahead of upcoming second-quarter earnings results followed by an earnings report.

¤ Health Health (UNH) and Humana (HUM) were the top performers in health care, as managed care firms are seen as some of the biggest beneficiaries of Trump’s second term.

¤ Citigroup (C) shined last week even against a backdrop of strong performance in major financials that easily passed the Federal Reserve’s stress tests, paving the way for higher dividends and higher returns. Shares of Citigroup received an additional boost from increased investor inflows into the stock, which lagged its large-cap peers last year.

¤ Nike (NKE) became the DJIA’s worst performer in 2024 after plunging 22% after the athletic footwear and apparel retailer unexpectedly forecast a decline in fiscal 2025 revenue, citing a challenging consumer spending environment. Retailers in the consumer discretionary subsector have warned of a slowdown in spending. Nike’s poor results and guidance have added warning signs.

¤ FedEx (FDX) rose about 18% this week after the delivery service company beat analysts’ expectations for revenue and earnings and produced upbeat guidance for fiscal 2025.

Future earnings and dividend announcements

The Q1 2024 earnings season is over, but several earnings releases are still scheduled for this week, mostly from firms whose fiscal year differs from the calendar year. This week, the only notable earnings report is that of Constellation Brands (STZ).

Ex-dividend dates are coming up this week for Real Estate Income (oh), Cardinal Health (CAH), Comcast (CMCSA), Campbell soup (CPB), Cisco Systems (CSCO), JPMorgan Chase & Co. (JPM), and other firms that pay dividends.

For more exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman,