Monthly S&P 500 forecast for June 2026
June 1st, 2026
Our monthly S&P 500 forecast for June is a 0.05 percent dip over the average of May 2026.
The model-based forecast takes into account the changes in oil prices and wages. However, a forecast model cannot possibly capture the full impact of uncertainty caused by tariff wars and geopolitical tensions, such as the war in Middle East.
The market rally continued in May
In April, the stock markets rallied on the back of the ceasefire between the US and Iran. The stock market rally gained further momentum in May as US companies reported stellar earnings.
At the end of May, the index was 5.1% higher than at the end of April. Despite the surging inflation, a downward revision to Q1 GDP, and the elusive peace deal with Iran, investors appear to remain optimistic about the stock market.
The US economy remains resilient. The positive impulse from Trump’s ‘One Big Beautiful Bill Act’ (OBBBA) became effective as of May 2026. The bill is to boost consumer incomes and short-term corporate earnings with favourable tax reliefs. Furthermore, consumer spending is currently strong as households use their savings to bring forward future purchases to beat any tariff-induced price increases. US companies are currently running efficient supply chains with stronger consumer demand. The stronger PMI data support this hypothesis.
The AI infrastructure boom has become more broad-based lately, lifting the shares of not only the ‘Magnificent 7’ companies, but also tech hardware companies such as Dell and electricity companies in the Utilities sector. The projection of capital spending on AI infrastructure is $750 billion in 2026. The scale of the investment boosts the growth prospects of the US economy.
Although the S&P index remains overvalued by historical standards, the earnings potential of the AI-fuelled boom is not easy to judge by the historical trajectory of company earnings. This explains why investors do not seem to be fazed by high forward P/E ratios.
PMI improves, and consumer confidence is mainly stable
The Chicago Purchasing Managers’ Index (PMI) climbed to 62.7 in May from 49.20 in April. The index averaged 54.25 between 1967 and 2026. The contraction in business activity has been a theme over the last two years. The latest data turnaround is especially significant in the face of rising energy and material prices caused by the war in Iran.
The Conference Board’s consumer confidence index edged down by 0.7 points to 93.1 (1985=100) in May, from 93.8 in April’s upwardly revised reading. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—retreated by 3.2 points to 121.2. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—rose by 1 point to 74.4. The survey period for this month’s preliminary results was May 1-19, and presumably was positively affected by the recovery in the stock markets.
Although consumers’ confidence in May was not significantly different from that in April, any positive sentiment may be dampened if the impact of higher oil prices becomes more pronounced as rising consumer prices in the coming months.
Inflation increases further, and Q1 GDP growth is revised down
The annual inflation rate in the US spiked to 3.8% in April from 2.3% in March 2026, slightly above the market expectation of 3.7%. This was the highest rate since May 2023. Increasing energy and materials prices were the main drivers of the higher inflation rate.
The personal consumption expenditures (PCE) index, a key barometer of inflation and consumer spending, rose at a 3.8% annual pace in April, in line with the market consensus.
Core PCE, which excludes the more volatile food and energy categories, grew 3.3% in April, up from 3.2% in March, also in line with market forecasts.
Brent crude price currently hovers below the 100-dollar-a-barrel mark, with the expectation of approaching peace in Iran. It remains to be seen how fast the inflation rate will cool down once the war ends.
The second estimate for 2026 Q1 GDP growth was revised down to 1.6% from the advance estimate of 2%, caused by downward revisions to consumer spending and investment. (Source: Bureau of Economic Analysis (BEA)). Economists polled by Reuters had forecast GDP growth increasing at a 2.0%.
No rate cut is expected in June
After the 25 bp rate cut in December 2025, the Fed’s target range for interest rates is 3.50% to 3.75%. As expected, the Fed kept the U.S. short-term interest rates unchanged in its January, March, and April meetings.
As a result of the war with Iran, inflation is hot again, and the 6% increase in the PPI is particularly worrying for the near-future inflation prospects.
As Kevin Warsh became the new Fed Chairman, he will be heading the next Fed meeting on June 16–17. Under the circumstances of high inflation and a resilient economy, we believe it is unlikely that the Fed would cut the interest rates before December and even next year. A hawkish monetary policy stance would even demand a rate increase. This would indeed be justified as the Fed’s slow post-pandemic policy actions were blamed for a prolonged period of elevated prices.
S&P 500 index is slightly overvalued
According to Factset Insights from May 29, the forward 12-month P/E ratio for the S&P 500 is 21.2. This P/E ratio is above the 5-year average (19.9) and above the 10-year average (18.9). FactSet reports that the blended (year-over-year) earnings growth rate for the S&P 500 is 28.6%. If 28.6% is the actual growth rate for the quarter, it will mark the highest earnings growth rate reported by the index since Q4 2021 (32.0%).
The latest forward 12-month P/E ratio is above the P/E values from the previous month (19.9). That said, the recent strong company earnings have reduced the extent of overvaluation. Our monthly S&P 500 forecast for June indicates a 0.05% dip over the average of May. We expect the forward P/E value to be fairly valued in April.
Our monthly S&P 500 forecast is a model-based fair-value estimate. Announcements of tariffs and cancellations cannot be captured in our model unless the impact appears in historical data. The possible impact of geopolitical tensions is fed into the model through keyword searches (Google clicks) and the advanced retail sales index. However, these variables perform better in normal times. Our quarterly S&P 500 forecast discusses these issues in more detail.
