The futures market suggest a lower open to today’s stock trading. This morning, the U.S. Bureau of Economic Analysis (BEA) reported price data for the month of December. The Personal Consumption Expenditures (PCE) price index was up 0.2%, month to month, versus economists’ outlook for a flat showing and the 0.1% decline posted in November. Year over year, the PCE rose 2.6%, matching expectations and the prior-month advance. Excluding volatile food and energy prices, the core PCE displayed monthly growth of 0.2%, again matching what was anticipated and above the previous pace of 0.1%. On a yearly basis, the core PCE stepped up 2.9%, one-tenth of a point below the experts’ outlook and less than the 3.2% expansion reported for November.
Additionally, the BEA released new data on personal income and personal spending. In December, income was up 0.3%, month to month, hitting economists’ estimate on the head, and slower than the previous growth rate of 0.4%. Spending expanded 0.7%, compared to an anticipated 0.5% and November’s 0.2% increase. We note that pending home sales for December will be released shortly. A two-point improvement in this measure, to 2.0%, is forecast.
The latest core PCE price index trend is consistent with Wall Street’s view that inflation is slowing, albeit somewhat unevenly, as the months go by. This data point is one of several closely monitored by the Federal Reserve, in regard to its interest-rate setting policy. The income and spending numbers concur with the consensus perspective that the domestic economy remains resilient in the extended aftermath of the highly disruptive coronavirus pandemic. Central bank officials meet next week, and will decide on whether or not to make a change to the federal funds rate, currently 5.25%-5.50%. Economists and market analysts are not expecting any change. The Fed will review new housing and employment figures as it prepares to make its decision.
Stocks appear on track to post modest gains for this week, with the tech-heavy NASDAQ composite turning in the best performance, followed, in order, by the broader Standard & Poor’s 500 (S&P 500) Index and the blue-chip Dow Jones Industrial Average (DJIA). Both the S&P 500 and the DJIA have hit record highs recently, and the NASDAQ is closing in on its previous all-time high scored in November of 2021. In addition to the latest PCE, income, and spending numbers, lending some support to share prices in the past few days were favorable Standard & Poor’s flash Purchasing Managers Index readings on the services and manufacturing sectors, tame reported jobless claims, improved durable goods orders, buildups in retail and wholesale inventories, better-than-expected new home sales, and a strong fourth-quarter gain in gross domestic product.
On balance, generally solid corporate earnings releases in the current reporting season have supported investor sentiment. The leading technology stocks have held up better early this year than many on the Street had been expecting. Still, even with the hype surrounding the potential benefits of artificial intelligence, we doubt that the largest tech companies can match their outsized share-price performances of 2023. Many investors are looking forward to a possible sustained broadening of stock gains to more cyclical and value equities. To date, the record on this has been spotty, but we would not be surprised to see such a scenario unfold as this year progresses. Fortunately, the stock market has held up well, despite more people coming to the realization that Fed cuts to short-term interest rates might be limited to only three one-quarter-point moves this year and not come until the second half.
All considered, we advise maintaining a diversified portfolio of stocks, weighted toward the best capitalized and inclusive of tech, healthcare, industrial, financial, and consumer staples issues. – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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