US stocks welcome the best election year since 1976, but what will make it continue to rise?

In an election year, the impressive performance of the US stock market so far is noteworthy.

According to FactSet data, the S&P 500 Index has risen by 14.5% year-to-date, mainly driven by the technology sector which rose by 28.7% and the communication services sector which rose by 24.8%.

Dow Jones Market Data Company stated that the S&P 500 Index is expected to achieve its best first-half performance in an election year since 1976, making it the second-best performance in election year history.

After continuous gains, investors can't help but wonder: can the US stock market continue to rise?

Key Factors Affecting the Future Performance of the US Stock Market: Inflation and Economic Growth

Some analysts point out that US inflation and economic growth issues may be key factors affecting the future performance of the US stock market. If inflation cools down and economic growth weakens, it may stimulate the Federal Reserve to accelerate interest rate cuts, which would be beneficial for the US stock market.

Regarding the inflation issue, William Northey, Chief Investment Officer at US Bank, mentioned that inflation and economic growth data will influence the timing and extent of interest rate cuts by the Federal Reserve this year. Although the Federal Reserve predicts only one rate cut in the second half of the year, pricing from the CME FedWatch Tool suggests that the Federal Reserve is likely to cut rates twice starting from September.

This Friday, the US will release the Personal Consumption Expenditures (PCE) Price Index for May, which will be a key data point to observe inflation. James Ragan, Director of Wealth Management Research at D.A. Davidson, expects that the May PCE data may confirm a cooling down of inflation, as earlier CPI data this month has already indicated.

Sam Stovall, Chief Investment Strategist at CFRA, anticipates that if the core PCE inflation data for May is lower than the previous month, it could be a positive sign for the stock market, as reduced inflation resistance would ease the Federal Reserve's rate-cutting path.

Ragan pointed out that besides inflation data, economic growth data is another major focus influencing the US stock market's performance. Market expectations suggest that US second-quarter GDP growth will slow down but remain positive. If GDP data is relatively weak, it may not necessarily be bad for the market, as it could prompt the Federal Reserve to accelerate rate cuts.

Ragan also added, "If the economy achieves a soft landing and maintains a positive stance, we should carefully watch cyclical industries such as energy, finance, materials, and industrials. If they start to perform better, it indicates a more sustainable rebound for the US stock market."

Analysts also caution: Pay attention to the valuation risks of the US stock market

Despite the current strong performance of the US stock market, some analysts believe that after a significant rise in the first half of the year, the market is prone to a pullback in the second half of the year due to factors such as corporate earnings expectations, potential Federal Reserve rate cuts, and the uncertainty of the November presidential electionAnalysts at Ned Davis Research believe that the continuous rise of the S&P 500 has led to high stock market valuations, optimistic market sentiment, and the stock market entering overbought territory.

Stovall also pointed out that although corporate earnings expectations have been improving since the beginning of this year, the speed of valuation increase is faster. This may be concerning. The expected corporate earnings growth rate for 2024 is 12% to 13%.

He said, "We must assess whether the continuous rise in stock prices and price-earnings ratios are truly the result of improving corporate earnings expectations. Currently, as investors await the arrival of the second-quarter earnings season, the relevant data has not received enough attention