First off, let me say that I love it when Steve Liesman and Rick Santoli get into the economic arguments on CNBC after big data drops.
It’s like watching two kids on the playground trying to get the last word in… two really smart kids.
The reason I bring them up is this morning’s release of the monthly personal consumption expenditures (PCE). The PCE is an index that reflects inflation (or deflation) by monitoring a wide range of consumer expenses and changes in consumer behavior.
It’s the Fed’s favorite inflation gauge.
“We dodged a bullet”
That was the only point you needed to hear. Today’s PCE report came in as expected on a month-to-month basis, but the number was hotter-than-expected (reflecting inflation risks) when compared from a year-over-year basis.
Put simply, this data is telling us what we already know… inflation isn’t going away.
I’ve noticed it on my “Walks Down Main Street,” at the pump, the grocery, and the restaurants that I frequent. I’m sure you have, too.
I just got a nice note from my insurance company about the increase in rates on my policies for next year.
So, how did we dodge this bullet?
Yesterday’s GDP data - the data that tells us how the economy is growing – came in lower than economists had expected. In other words, the economy is starting to show unexpected signs of slowing.
When you put the two of these important data points together… it spells S-T-A-G-F-L-A-T-I-O-N.
Jamie Dimon, CEO of JPMorgan (JPM), commented at an event on Wednesday that he was skeptical about the odds of a soft landing AND that he’s worried about the chances that the U.S. economy is heading for 1970’s style stagflation.
What it means right now is that the Fed is even less likely to lower interest rates over the next few months. It even starts to put more credence in the idea that we may not see cuts to interest rates at all in 2024.
Here’s what else it means…
The trend in gold is not likely to back off anytime soon. We’ll talk about that in a minute.
Because we also dodged another bullet last night.
Earnings from Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN) hit the wires after the close and all three stocks jumped in afterhours trading.
Investors were ready to flood the market with sell orders after Meta (META) and Tesla (TSLA) kicked off the “Magnificent Seven” earnings by laying a few eggs. Last night’s earnings results bought some time for the bulls, but you’re going to see this reverse as we head into May.
I’ll talk more about the earnings and how to trade them around midday with you. Make sure you check your inbox this afternoon.
Bottom Line
This market has felt like it has been in a state of suspended animation for the last two months as investors recognize that there are still problems with the economy but remain hopeful that the Fed will save the day with rate cuts sooner rather than later.
You know what I say about the “hope” trade.
I don’t normally think of the Fed meetings as something that the average investors need to prepare for, but the Fed meets for an interest rate decision next week, and there is a good chance that they could rock the market.
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.