U.S. PCE Data Effect On Market Movement
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I am trying to look at a trend on how the previous month (January) U.S. Personal Consumption Expenditures (PCE) data has an effect on market movement.
The February PCE data due to release today(31 Mar, Friday) would need to consider the recent banking sector issue. How the Fed has reacted with a 25 basis point increase.
I would focus on the US Core PCE Price Index MoM (Month on Month) and US Consumer Spending MoM.
Let me try to explain how we can digest the PCE data. Hope this can help us to better make our trading plan.
What is U.S. Personal Consumption Expenditures (PCE) data
The U.S. Personal Consumption Expenditures (PCE) data is an important economic indicator that measures the inflation-adjusted expenditures made by households and non-profit institutions serving households (NPISH) on goods and services.
As a result, it can have a significant impact on market movements.
What insights can it provide when released
When the PCE data is released, it provides insight into consumer spending patterns and inflationary pressures in the economy.
What happen when consumer spending increase
If the data shows an increase in consumer spending, it can be interpreted as a positive sign for the economy, indicating that consumers have confidence in their financial situations and are willing to spend more.
This, in turn, can lead to increased demand for goods and services, potentially driving up prices and stimulating economic growth.
My Observation and View - January 2023 Consumer Spending increase
PCE data for January released on 24 Feb 23 show an increase in consumer prices make the market react negatively bringing the indexes to the RED.
Nasdaq falling 1.7%. followed by the S&P 500 (-1.1%), the Dow (-1.0%).
Remember what cause inflation, increase in prices - so can we interpret it as if the prices keep increasing, no doubt economy is good.
This bring investors to expect the Federal Reserve to ramp up interest rates in both amount and duration.
What happen when consumer spending decrease
On the other hand, if the PCE data shows a decrease in consumer spending, it can be interpreted as a negative sign for the economy.
This indicate that consumers are uncertain about their financial situations and are holding back on spending.
This can lead to decreased demand for goods and services, potentially driving down prices and slowing economic growth.
From the forecast as shown below, it is at a very low level (0.3%), which could mean that consumers are expecting some uncertainty.
The uncertainty could be in terms of jobs, savings, and also increase in their commitment. These are factors that might make consumer to spend less.
https://tradingeconomics.com/united-states/pce-price-index-monthly-change
https://tradingeconomics.com/united-states/pce-price-index-monthly-change
My Observation and View
If the demand for goods and services is decreased, prices is lower, but this would mean slower economic growth. This could mean more job loss.
My personal view would be it might be better to have a small increase or maintain the PCE level, no doubt there might be rate hike.
And maintain the consumer spending as well (but not as high as January 2023), because a big dip might mean that people are spending less, companies producing goods and services would adjust the supply accordingly to the demand.
Maybe we can think whether would it be better to have more people employed, rather than job losses. Government might need to dip into more reserves to support job losses.
That might not be a good sign.
Which sectors would most impacted
To summarize, the release of PCE data can impact market movements.
This is particularly true in sectors such as consumer goods, retail, and hospitality. We as Investors and traders may use the data to make investment decisions.
So I personally would look at the following stock when PCE data is due for release.
Since it can also influence the monetary policy decisions of the Federal Reserve, but we cannot control how Fed decide to move.
It would be better to make our trading plan around the data released.
Do share your thoughts in the comment section on whether you do look at PCE data to plan your trade.
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Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Technical Analysis, and there are many other indicators that need to be look at together. (e.g., Price Action, Volume, etc.).
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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