Good morning!

Stocks have been riding a three-week winning streak into the final days of the second quarter, but a key inflation test Friday will be a crucial indicator for the markets. Here's what's happening...

• We're at the tail end of one earnings season and the dawn of another, but there are still a handful of notable companies reporting this week. This morning, FedEx, Carnival Corporation, and Woodside Energy post their Q2 earnings, followed Wednesday by Micron Technology (a leader in A.I. tech), Paychex, General Mills, and Levi Strauss. Thursday is the only other day for earnings from major companies, with numbers due from Nike, Walgreens Boots Alliance (Walgreens in the U.S. and Boots in the U.K.), McCormick, and Polestar Automotive. *

• The Federal Reserve's preferred inflation gauge, the core PCE (Personal Consumption Expenditures) index hits Friday. Both the headline and core PCE inflation rates are forecast to ease to around 2.6% for May, which would be the slowest annualized rates since March 2021 and likely cement the market's bets on an autumn Fed rate cut. At present, the CME Group's FedWatch suggests a 66% chance of a quarter-point reduction in September, with similar odds for a follow-on move before the end of the year. **

• The U.S. stock market has experienced a strong rally in 2024, with the S&P 500 on track for its best first-half performance in an election year since 1976. However, analysts warn that the market is overbought and valuations are stretched, making it vulnerable to a correction. Investors are closely watching inflation and economic growth data, as well as corporate earnings, to gauge the Federal Reserve’s potential interest-rate moves. The rally has been driven mainly by megacap tech companies, but for it to continue, broader participation from other sectors is needed. Upcoming data on consumer confidence, home sales, and jobless claims will be key indicators for the market’s direction. ***

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