The ‘Right Tail’ for Stocks Just Got Better: Here’s the Number Behind It
Key takeaways
- The 'right tail' for equities has increased, supporting risk assets and favoring AI goods and services, retail, banks, and transports.
- S&P 500 closed at a record 7,798.99 on Thursday
- Core PCE stripped of financial services prices still sit above the Federal Reserve's 2% target
- Forward margin estimates for companies with specified AI use cases have continued to outrun those without
What happened
The S&P 500 closed at a record 7,798.99 on Thursday, clearing 7,800 intraday for the first time, after two straight inflation reports came in cool enough to push a September rate hike out of the picture.
Why it matters
22V Research's analyst Dennis DeBusschere wrote that the 'right tail for equities has increased' due to benign labor and inflation data, which means financial conditions can stay easy for months, possibly far longer.
Short-term and longer-term
Short-term. The recent inflation data has widened the range of good outcomes, increasing the odds of the upside scenario, which supports risk assets and favoring AI goods and services, retail, banks, and transports.
Longer-term. Over the next few months, the question for these shares is whether this changed the longer case, or it is one event.