Stocks are set for a positive open today as investors are reacting to new economic data released this morning. The U.S. Bureau of Economic Analysis (BEA) announced that its Personal Consumption Expenditures (PCE) price index rose 0.3% in the month of March, in line with economists’ estimates and the prior-month gain. On a year-to-year basis, the index was up 2.7%, stronger than the anticipated 2.6% and the month-earlier advance of 2.5%. The core PCE, which excludes volatile food and energy prices, increased 0.3% on the month, as well, and 2.8% for the year. The monthly number was on a par with what the experts were expecting and the yearly figure was a bit hotter, though even with February’s reading. Inflation, as measured by the core index, the Federal Reserve’s preferred indicator, is holding fairly steady at a modest level. Wall Street had been hoping for a clear easing of prices, but the latest readings are not overly concerning.
Prior to today’s opening bell, the BEA also released personal income and personal spending data for March. Personal income expanded 0.5% and spending stepped up 0.8%; economists were looking for increases of 0.5% and 0.7%, respectively. In the month before, income improved 0.3% and spending trended 0.8% higher. Working consumers are still receiving pay hikes and, despite elevated prices for goods and services, they have not cut back on spending, at least not in a big way. These data support the assessment that the domestic economy remains healthy. Data released earlier this week pointed to greater activity in the housing market, an expanding services sector (as per Standard & Poor’s), rising durable goods orders, and continued low levels of initial jobless claims. Countering these positives, however, were indications of a contraction in manufacturing (S&P) and a disappointing first-quarter gross domestic product growth measure of 1.6%. A reading on consumer sentiment is due out shortly.
On balance, the major domestic stock market indexes appear poised to post gains for this week. Through Thursday’s close, the tech-heavy NASDAQ was up 2.2%, the broader Standard & Poor’s 500 had moved up 1.7%, and the blue-chip Dow Jones Industrial Average was incrementally higher, more specifically, up 0.3%.
Aside from the general economic data reported, corporations are rolling out their March-quarter results. So far, earnings have been reasonably good but, tempering stock market enthusiasm, is managements’ conservative view of business for the coming months. One prominent example is that, on Wednesday night, Meta Platforms (META) was cautious in its revenue forecast and announced plans, similar to those of many peers, for heavy spending on artificial intelligence initiatives. META shares sold off on the news in Thursday trading. Supporting tech-sector valuations, however, were solid reports from Microsoft (MSFT) and Alphabet (GOOG). Their artificial intelligence-enabled cloud services are enjoying sustained favorable corporate demand.
Next week, investors will parse additional data on employment, housing, manufacturing, construction spending, consumer confidence, and productivity. Most visibly, the Federal Reserve will meet and decide on any adjustments to its short-term interest rate policy. Chairman Jerome Powell will provide some of the details on Wednesday afternoon. The consensus on Wall Street is that the central bank will hold the federal funds rate at 5.25%-5.50%. Lately, it seems the view on the Street is that the Fed will cut rates in one or two 25-basis-point increments during the second half of 2024, most likely sometime after mid-year. The yields on Treasury bills and bonds have risen, reflecting this more conservative view, versus what was expected at the start of the year, posing competition for stocks.
Equities have given up some of their solid gains recorded in the first three months of 2024. Performance through the remainder of this year will be dependent on broader economic growth, corporate earnings, consumer spending, the pace of inflation, and, of course, Fed rate policy. Military conflicts and geopolitical tensions in the Middle East, Europe, Asia, and the Far East add a measure of uncertainty to the investment climate. For now, it’s best to diversify portfolios with high-quality stocks and bonds and a stash of cash in high-yielding instruments. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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