S&P 500; US Indexes Fundamental Daily Forecast – Boosted by Solid Retail Sales, Merger Possibilities

The major U.S. stock indexes are grinding higher after posting a strong performance during the pre-market session. Today’s early rally is trying to make investors forget about yesterday’s late session sell-off that was fueled by the U.S. Federal Reserve’s decision to raise interest rates at least two more times before the end of the year.

In the cash market at 1400 GMT, the benchmark S&P 500 Index is trading 2784.25, up 8.62 or +0.31%. The blue chip Dow Jones Industrial Average is at 25277.47, up 76.27 or +0.20% and the tech-driven NASDAQ Composite is trading 7739.59, up 43.89 or +0.57%.

Helping to drive the indexes higher today is solid U.S. economic data. During the pre-market session, the Commerce Department said retail sales rose 0.8 percent in May, well above the pre-report estimate of 0.4 percent. This was the biggest jump in retail sales since November.

Investors continue to respond to possible merger activity in the media sector in response to a judge’s ruling two days ago that allowed for AT&T’s acquisition of Time Warner.

Earlier today, shares of 21^st Century Fox rose 1.4 percent after NBCUniversal-parent Comcast announced a bid to buy several major units of the media giant for $65 billion. Comcast’s bid tops Disney’s, who agreed to a $52.4 billion deal.

Yesterday, stocks sold off into the close after the Fed raised its benchmark interest rate 25 basis points to between 1.75 percent and 2.00 percent. The move was likely investors making an adjustment to their portfolios to reflect the Fed’s desire to raise rates two more times before the end of the year.

Treasury yields rose on the news and since stocks are a competing asset, prices fell. Stocks may be recovering today because the veil of uncertainty about the pace of future rate hikes may have been lifted by the Fed’s decision.

Furthermore, the Fed justified the rate hike and future rate hikes because it expects the U.S. economy to continue to strengthen and a strong economy is good for stocks. Today’s strong retail numbers supports the notion of a strengthening economy.

Essentially, investors believe the Fed’s gradual rate hikes will be just enough to slow down inflation, but not enough to stop economic growth.