Anheuser-Busch Inbev SA Sponsor (BUD) Stock Forecasts

Summary

Exiting Inflation Even as major indexes continue to reach new all-time highs, the motivating factor – the fact that the Fed is preparing to adopt an accommodative monetary policy – ​​is proving increasingly tenuous. May inflation data released in mid-June was either in line or slightly better than expected. Yet the Federal Open Market Committee’s (FOMC) response was to suggest that not two but one rate cut would be appropriate this year. The stock market is doing well as the end of the first half approaches. History has shown that markets showing double-digit appreciation mid-year tend to end the year with above-average gains. Yet this progress seems oddly fragile, as it appears to hinge on the perception that the Fed will soon begin cutting rates for the first time since the early days of the pandemic. The usual mix between inflation and the Fed May inflation figures released during the second week of June were generally considered positive, allowing the stock market to reach new highs four times in one week. Yet the data also showed that several components remained stubbornly high. May’s all-items consumer price index (CPI) remained unchanged month-on-month compared to April; the previous month’s figure represented a stronger-than-expected 0.3% gain. The consensus of economists expects the all-items CPI to rise 0.1%. On an annual basis, May’s all-items CPI, at 3.3%, was 0.1% better than expected and slightly better than April. Economists focus on the core CPI, which excludes food and energy. Given the decreasing inflation in these two categories, consumers are much less likely to overlook the two elements that contribute to their price woe. However, the core CPI also showed moderate progress. On a month-over-month basis, May’s core CPI rose 0.2%, up from 0.3% in April (which was also the consensus call) and the lowest level since June 2023. The annual change in underlying CPI was 3.4%, exceeding both the consensus call of 3.5% and April’s 3.6% level. The producer price index also contains good news from further up the price pipeline. The overall PPI unexpectedly fell 0.2% from April levels, much better than expectations for a 0.1% increase. The year-over-year change in overall PPI was 2.2%, again much better than the consensus of 2.5%. Excluding food and energy, the monthly variation in the PPI was 0.0% (vs. 0.3% consensus); and the annual variation was 2.3% (vs. 2.4% consensus). On June 12, the day of the CPI release and one day before the PPI release, the Fed concluded its two-day FOMC event and released the minutes of that meeting. Not surprisingly, the committee voted to keep the federal funds rate at trend 5.25% at 5.50%, as it has in seven consecutive meetings since July 2023. The subsequent FOMC statement contained both positive and negative elements and, as usual, left the Fed with plenty of room to maneuver. In May, the FOMC statement noted “a lack of further progress toward the Committee’s 2 percent inflation goal.” The text of the June FOMC report, by contrast, noted “modest further progress toward the Committee’s 2 percent inflation goal.” In contrast, the Fed released a new dot chart that appears to signal the likelihood of just one rate cut in 2024. Of the 16 voting members, eight predict two rate cuts for the year, seven favor just one rate cuts and four forecast zero rates in 2024. Although the Fed has gone from two planned cuts to one, possibly just one, Argus bond strategist Kevin Heal believes the Fed is trying to balance the positive effects of restrictive policy on reducing overall inflation, with the negative effects of a prolonged rise in interest rates. price on the low or moderate income population. Middle- and lower-middle-class earners have been forced to reduce their purchases of goods, which could contribute to the actual decline in prices in categories such as used cars. Everyone is affected by rampant inflation in service categories like car insurance – unavoidable for most people trying to get to work. Housing costs are also consistently ahead of the general inflation trend, rising 5.4% annually in the May CPI. If you take the current annual change in the CPI and subtract the shelter component, the current inflation rate would be exactly at the Fed’s 2% target. Argus still expects the Federal Reserve to cut federal funds and discount rates twice in 2024: once at the September meeting before the election, and again at the December meeting post-election. electoral. Each cut is expected to be 25 basis points, bringing the Fed’s central tendency back to the 4.75% to 5.00% level by the end of the year. Despite two rate cuts in the final four months of 2024, the Fed is likely to proceed cautiously next year, according to income strategist Heal, with just two more quarter-point rate cuts in 2025. Stocks record new all-time highs, Again, as of close 06/14/24, the S&P 500 had generated a 2024 total return of 14.6%. Capital appreciation excluding dividends was a few tenths lower, at 13.9%. By mid-June, the S&P 500 had reached new all-time highs about 30 times. Also as of mid-June, the S&P 500 had finished higher in 25 of the previous 32 weeks, for its best record of winning weeks since 1989. The Nasdaq has moved away from the SP5 over the past month and a half, after having followed the price of star stocks. index until April. The total return of the Nasdaq Composite as of 06/14/24 was 18.3%. Wilshire Large-Cap Growth did better, with a total return of 23.7%. The gap between large cap growth stocks and large cap value stocks (+5.7%) continues to widen and now stands at 18 percentage points. The DJIA remains a laggard, hurt by laggards such as Boeing and old technology names that are being overshadowed by new tech giants. Sectorally, information technology and communications services continue to dominate, with gains of more than 20% year to date. Utilities are the only other sector to report double-digit growth year-to-date, but they are now lagging behind the overall market. Seven sectors are up 3-9%, while real estate remains the only