Inflation Is Getting Stubborn... But We’re Buying MORE!

Markets are closed this morning in observance of Good Friday, but the Federal Government is still hard at work (not really).

We got the latest “print” from the Government’s personal consumption expenditures (PCE) price index. This is Jerome Powell’s favorite inflation gauge. The trend has a heavy influence on whether the Fed will start raising rates in June.

Over the last month, prices have risen 0.3% - just as analysts expected.

Year-over-year prices are 2.8% higher, which was also in line with expectations.

The real news from the report was not that inflation is getting very “sticky,” but that consumer spending shot higher by 0.8% for the month. That’s almost double what analysts were expecting.

This combination starts to shift the groups of stocks that you may want to start considering for your portfolio in the second half of 2024.

We’ll get deeper into this subject next week, but the combination of lower rates and rising consumer confidence and spending puts a whole new group of consumer-based stocks in the spotlight.

I’ll break out a few on Monday.

Let’s turn back to how the market might react to today’s data.

First and foremost, the PCE numbers will only make the Fed more patient with interest rates.

Jerome Powell’s worst nightmare is for inflation to come roaring back in the second half of 2024.

For that reason, you may see the Fed start to hint that we may only see two rate cuts in 2024. Yeah, that’s a possibility even after Jerome Powell’s last press conference where he confirmed there would be three cuts.

Just Wednesday, we saw St. Louis Fed President James Bullard suggest that the Fed was going to maintain their patience.

Expect the Fed to start delivering that message on Monday, which may slow an already slowing market.

Bottom Line

The market has been a little “touchy” lately. The Magnificent Seven stocks have spent the last two weeks struggling to avoid rolling over.

Semiconductor stocks, the heart of the AI Rally, are trading 6% off their highs.

Nvidia (NVDA), “The King”, is looking like it needs a rest ahead of the earnings season as it sits at $900.

Add to that the language that we start hearing from the Fed next week, and you’ve got a higher likelihood that the market is ready for that “healthy correction” that we’ve been looking for over the last three weeks.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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