Deluge of economic data | Nasdaq


Personal Consumption Expenditure (PCE) the data hit the tape, in all its digital boredom. Yet, within these tea leaves is a lot of useful data for the Fed in its monetary policy decision-making, among other things. So while they may be harder to track than, say, the monthly employment numbers (next week, by the way), they are at least as important.

PCE inflation for December entered the stock at +0.4%, down from the +0.6% reported for November. Core PCE, which excludes volatile month-over-month prices, was +0.5%, as expected and exactly in line with the previous month’s reading. Year-over-year PCE inflation rises 10 basis points to +5.8% from November, while year-on-year change in core PCE inflation stands at +4.9 %, higher than the estimate of +4.8% and the +4.7% of the previous month.

This is important because to see a year-over-year PCE deflator as high as +5.8%, one would have to go back to 1982. The core +4.9% year-over-year deflator another was the highest we’ve seen since September 1983. We’re talking about 40 years. So we are officially, clinically, at our highest inflation points in the US economy since President Reagan’s first term. And the financial momentum at the time was such that it might be unrecognizable to market participants today.

Still, the pre-market activity was a big hit with the news: while before print we saw the Dow -280 points, the Nasdaq -97 and the S&P 500 -33, a few minutes later we were at -100 points on the Dow, -8 on the S&P and the Nasdaq tipped to +14 points. Indeed, even if the PCE data is high, it is decreasing. Especially on the stock +0.4%, down 20 basis points m/m – and in the heart of the holiday shopping season.

Do we see consumers resisting higher prices? This would be, to a certain extent, an organic control of inflation. And if this holds, we may even see a peak in the rate of inflation NOW. And if that’s true, with markets pricing in four or more interest rate hikes this year alone, will the Fed have to raise rates that much? If they don’t, then aren’t we oversold?

OK, that’s a lot of question marks. This is to be expected as pre-market trading is getting more bearish as the paragraphs go by. We don’t know yet, is the simple answer. But the clues are there to at least recognize the potential for near-term hope.

the Employment cost index in the fourth quarter fell more than expected to +1.0%, from +1.3% in Q3 and +1.2% expected. During this time, Personal income fell to +0.3% last month; it was expected to rise by 10 basis points to +0.5%. consumer spending reached -0.6% for December, generally in line with expectations, but a big departure from the +0.6% recorded in November and the 15-year high +0.7% recorded for October 21. Still further evidence that we may be peaking on the inflation front.

We of course need more data to be definitive on this. And as Frank Sinatra once sang, “Fools rush where angels fear to tread.” But we expect portfolio managers to build strategies that assume we’re currently at the bottom of the market; no one wants to be left behind when the current -20% discounts from high profile companies suddenly evaporate. Basically, a bullish narrative is now on the radar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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