The stock market’s next leg higher may not need another AI miracle or mega IPO.
After months of AI dominance and a week of SpaceX (SPCX) frenzy, Alfonso Peccatiello of the Macro Compass argues that the setup for stocks is becoming broader: solid growth, inflation that is contained enough, and a Fed that kept policy predictable by leaving rates unchanged.
That combination has historically been a good one for stocks.
His framework points to the S&P 500 (^GSPC) near 8,000 to 8,150 in six months — roughly another 8% to 10% from Thursday’s close.
The Macro Compass says the setup of solid growth, contained inflation, and a predictable Fed has historically been a strong one for stocks.
(Source: The Macro Compass)
Peccatiello defines the “Goldilocks” setup as a narrow mix — growth firm after taking out inflation, but not too hot; core inflation contained; and a Fed that is either on hold or hiking interest rates no more than once.
Since 1990, that backdrop has produced an average six-month S&P 500 return of 9.5%, compared with 5.8% for any random six-month period. The hit rate was 96%.
Stocks don’t need perfect conditions for above-average gains. They tend to like growth plus predictability.
Peccatiello sees the US money-creation machine still running hot, with public deficits and private credit creation supporting nominal growth. At the same time, his labor market gauges point to healing rather than overheating, while shelter disinflation may help offset renewed pressure on goods inflation.
The Fed doesn’t need to cut rates for that setup to work. It just needs to avoid surprising markets with something more hawkish than investors already expect. Warsh’s first meeting put that rule to the test. The Fed held rates steady, but a shorter statement and less forward guidance gave investors less of the predictability Peccatiello’s setup depends on.
That makes the recent market rotation carry more weight for investors.
June’s leaders are not the usual AI suspects. Financial Services (XLF), Industrials (XLI), and Materials (XLB) are leading the sector board, while the megacap-dominated Technology (XLK), Communication Services (XLC), and Consumer Discretionary (XLY) sectors are lagging, along with Energy (XLE).
Month-to-date large-cap sector ETF returns show Consumer Discretionary leading, while Energy and megacap sectors lag.
(Source: Yahoo Finance analysis of AlphaSpace data)
AI still matters.
Peccatiello said 70% of the S&P 500’s variability is explained by the AI factor, which is why he prefers expressing the bullish risk view in selected emerging markets and European equities rather than US megacap tech.
The US tape is making a similar point. The Roundhill Magnificent Seven ETF (MAGS) is down about 8% in June, extending the megacap drag that recently erased trillions in “Magnificent Seven” market value.
The first Warsh-led decision reinforced that point. For this setup, the key is not whether the Fed cuts, but whether it avoids jolting investors with a hawkish surprise.
Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com.
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