Stocks look to start today’s trading on a negative note, as per the futures market. Prior to the opening bell, investors received much-sought-after economic data for the month of February. Domestic personal income posted strong growth of 0.8%, versus economists’ estimate of 0.4% and the January pace of 0.7% (revised down from 0.9%). Personal spending advanced just 0.4%, compared to an expected 0.5%, but better than the previous month’s contraction of 0.3% (0.2%). Consumers, though worried about near-term economic prospects, are still in a fairly solid position. They have increased their savings. That said, a greater reliance on revolving credit is important to keep tabs on.
Also top of investors’ minds were the latest numbers on inflation. Last month, the Personal Consumption Expenditures (PCE) price index rose 0.3%, in line with what was anticipated and the rate recorded in the first month of 2025. Year over year, this inflation measure gained 2.5%, also on a par with the estimates and January’s rise. Excluding volatile food and energy prices, however, the so-called core PCE index increased 0.4% in February, which was a tick above an expected 0.3%. Matched against the same period of 2024, core PCE expansion was somewhat hotter, up 2.8%, versus the previous 2.6% rate. These data are not setting off any alarm bells on Wall Street, but investors remain concerned that goods-and-services price momentum will accelerate under President Trump’s policy of imposing import tariffs. Talk of a recession is noteworthy, but we don’t expect such a downturn anytime soon.
In short order, the University of Michigan will release its final read on March consumer sentiment. This measure will probably be close to the dismal preliminary estimate of 57.9. Like investors, consumers are fearful that inflation will rise in the weeks ahead. They are closely managing their household budgets, in the event of a possible slowing economy. The depressed mood is having an impact on business spending. President Trump’s vacillations on tariffs has created much uncertainty, and corporate leaders are being cautious, reining in investment plans. They don’t want to be overly exposed to any particular, possible fiscal scenario.
Early this week, Trump indicated a degree of flexibility, regarding tariffs imposed on our traditional allies. That supported a partial recovery of share prices. His reversal on this matter, however, led to stock declines Wednesday and Thursday. The broader market indexes look to finish this week flat to up, with the blue-chip Dow Jones Industrial Average performing better than the broader Standard & Poor’s 500 and (more so) the tech-weighted NASDAQ.
The Federal Reserve next meets to discuss the economy and interest-rate policy in early May. A majority of economists seem to believe the Fed will once again leave interest rates unchanged at the current 4.25%-4.50% level. Indications of a weakening job market and/or a pickup in inflation could well prompt a move. Many on the Street anticipate two or more one-quarter-point reductions to short-term rates, potentially underpinning business growth. So far, though, the U.S. economy remains on a fairly solid footing.
Wall Street is divided as to whether stocks will soon rebound or even take another leg down. We are cautiously optimistic that share prices can stage a recovery through the end of this year, which is by no means guaranteed. A good number of individual investors are being defensive, shifting from technology growth equities to more-conservative issues, including those in the utilities, materials, healthcare, and consumer staples sectors, as well as high-quality cash instruments and bonds. Too, individual portfolios have become more weighted toward foreign stocks. Such a strategy appears prudent, at least for now. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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