PCE Report on 29 Feb : Buy the dip or Run for life?
Recap in order?
I have not done a market afterthought for a while. It is a new week.
With Washington’s birthday (Mon, 19 Feb 2024) over and US market resuming trading, a recap might just be what the doctor orders?
Last week, apart from quarterly earnings released throughout the week, there were some US economic reports out as well, “traumatizing” market sentiments with its data.
Reports affecting US market:
Consumer Price Index (CPI) - Tue, 13 Feb 2024.
US Weekly Jobless Claims - Thu, 15 Feb 2024.
University of Michigan Consumer Sentiments - Fri, 16 Feb 2024.
Producer Price Index (PPI) - Fri, 16 Feb 2024.
Consumer Price Index : [-ve]
This report caused US market to “mini-crash” on Tue, 13 Feb 2024.
For the simple reason that data reported is “higher” than Wall Street estimates.
CPI was 3.1% instead of 2.9% expected.
Core CPI was 3.9% instead of 3.7% expected.
There was failure to recognize that CPI was still lower than December’s data and Core CPI was stagnant, remaining status quo when compared to December’s data.
Investors’ - institutions & retail realized the error of overreaction.
Market began to stage a recovery of sort over the next 2 trading sessions.
Weekly Jobless Claims : [neutral]
Weekly Initial Jobless Claims was 212,000, again lower than projections (219,000).
This comes amid a slight upward revision to previous week’s claim of 220,000.
This week’s data is the lowest weekly print since the 2nd week in January (187,000), that was the last time new claims were sub-200K.
It is telling that US labour market continues to remain tight, not something the Fed would like to see.
Do not believe this week’s data gave market any headache.
Uni of Michigan’s Consumer Sentiments : [+ve].
US consumers were optimistic about the US economy for the 3rd straight month in February 2024.
Initial reading on consumer sentiment in February 2024 (79.6%) showed the index inched higher from January (79.0%).
According to Survey of Consumers, Director - Joanne Hsu, data suggests that consumers continue to feel more assured about US economy, confirming the improvements in December 2023 and January 2024 — across various aspects of the economy.
That said, February’s preliminary data is slightly below analysts’ forecast of 80.0%.
On the whole, sentiment is about +30% higher than it was in November 2023.
Producer Price Index : [-ve].
Wholesale prices in US accelerated in January 2024, the latest sign that some inflation pressures in the economy remain elevated.
On Fri, 16 Feb 2024, the Labor Department reported its producer price index (PPI) rose +0.3% from December to January, after falling by -0.1% from November to December.
The PPI report tracks inflation before it reaches consumers.
Measured YoY, PPI rose by a mild 0.9% in January 2024.
PPI data follow a surprisingly hot CPI report that showed that consumer prices eased less than expected in January 2024.
Clearly indicating that the pandemic-fueled inflation surge is only gradually coming under control.
More importantly, Friday's PPI will likely underscore the Fed's caution about when to begin cutting its benchmark interest rate.
Fed officials will likely monitor several more months of data to ensure that a downward trend in inflation will continue.
My viewpoints : (mine & mine only)
The above reports are all done deals, completed and passed on.
They have been reported, market have digested them and reacted accordingly.
For the week 12 Feb to 16 Feb, (a) Dow Jones was down -0.07% to 38,627.99, (b) $S&P 500(.SPX)$ was down -0.42% to 5,005.57 and (c) $NASDAQ(.IXIC)$ was down -1.28% to 15,775.65.
What is important is to know is — some of Friday's data is used to calculate the Fed’s preferred price measure - the Personal Consumption Expenditure (PCE) report.
The PCE for January 2024 is slated for release on Thu, 29 Feb 2024.
So far, the PCE report has been running below the CPI report. (see below)
In H2 2023, the PCE report have showed that prices rose at just a 2% annual rate, matching the Fed’s inflation target.
If you trace through above chart, it is not rocket science to see all 3 indexes rise and fall in tandem.
For January 2024, both CPI and PPI reports have registered rising (& worrying) trends.
The two bigwigs — $NVIDIA Corp(NVDA)$ and $Berkshire Hathaway(BRK.A)$ will report their earnings on Wed, 21 Feb and Fri, 23 Feb respectively.
Question remains:
Whether Nvidia and Berkshire earnings will be able to lift the market to a new “high”?
Whether January 2024 PCE report will rise, like CPI and PPI or will it continue its downwards trajectory?
Whether US market gains attributed to Nvidia and Berkshire will be able to more than offset the anticipated decline to be brought about by a possible correction by PCE report?
Mathematically, at this point in time, I really think that PCE data would force a correction in the US market.
Regardless, my eyes are locked on $UBS Group AG(UBS)$ and $Alphabet(GOOGL)$.
This brings us to the concluding question — do we sit out the week of Feb 20 - 23, and bargain hunt on 29 Feb 2024?
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Do you think it is prudent to sit out a short trading next week? (Mon is public holiday).
Do you think the PCE report will register a rise or continue decline?
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