- The US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, is due.
- Recent US economic data has been weaker than expected, leading to increased market fear.
- Tariff threats by President Trump have added to market concerns about inflation and global growth.
- Technically, the S&P 500 is in bearish territory, having broken key support levels.
The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred gauge of inflation, is set to be released this Friday.
Market expectations indicate that the core PCE, which excludes volatile food and energy prices, could show a 0.3% month-over-month increase, with annual gains of 2.6% for core inflation and 2.4% for the headline figure. These projections suggest only modest cooling from December, signaling that inflationary pressures remain above the Fed’s 2% target.
Does US Data Show Signs of a Stalling Economy?
This week’s US data has underwhelmed and given signs that the economy may be stalling. We have seen market sentiment sour over the past few weeks with the sharp rise in US CPI adding to the market’s skepticism.
The current Fear & Greed Index of 22 reflects a market primarily driven by fear, indicating a very cautious approach among investors. A bounce-back in the US stock market would not be surprising given the extreme fear levels.
Source: Isabelnet
Earlier on Thursday, we had the release of US GDP data for Q4 2024. The US economy grew by 2.3% in the fourth quarter of 2024, its slowest pace in three quarters, down from 3.1% in the previous quarter. This matches earlier estimates. Personal spending was the main driver, growing by 4.2%, the fastest since early 2023, with increases in spending on both goods (6.1%) and services (3.3%).
Exports fell slightly less than expected (-0.5% vs -0.8%), and imports dropped more (-1.2% vs -0.8%), which added positively to growth. Government spending also rose more than previously thought (2.9% vs 2.5%). However, private inventories reduced growth by less (-0.81 percentage points vs -0.93).
On the downside, business investments dropped more than estimated (-1.4% vs -0.6%), mainly because of a bigger decline in equipment investments (-9%) and no growth in intellectual property investments (0% vs 2.6%). On the bright side, residential investments improved slightly more than expected (5.4% vs 5.3%).
For the whole of 2024, the economy grew 2.8%.
Despite the lackluster data, yesterday’s tariff comments by President Trump reignited the US Dollar Index rally and weighed on US stocks. President Trump promised reciprocal tariffs are still on course for April 2 while tariffs in Mexico and Canada are set for March 4, next Tuesday.
Tariff Threat to Inflation
Looking at the potential scenarios from tariffs, it continues to weigh on Global markets. OPEC + are having disagreements on a potential output hike in April, with tariffs cited as a key concern.
At present, the concerns around tariffs relate largely to its impact on inflation and an impact on Global growth. Inflation fears have been on the rise both in the US and globally, with Central Banks all warning about the upside risks to inflation.
The US CPI print was hot this month while Michigan consumer sentiment and CB Consumer confidence both showed significant increases in the 12-month inflation expectations. This obviously does not bode well for consumers who were hoping for more rate cuts in 2025.
However, Fed Chair Jerome Powell was quick to stress the importance of the PCE data when the inflation print was released a few weeks ago. This has added to the importance of today’s data release.
Source: Table Created by Zain Vawda
The above table provides an insight into what I expect will happen depending on the PCE prints released later in the day.
My personal expectations are that the data will land quite close to expectations which could lead to some short-term volatility and whipsaw price action before markets settle down.
Technical Analysis – S&P 500
From a technical standpoint, the S&P 500 on a daily timeframe is now firmly in bearish territory having broken below the previous lower high print at 5910.
Price also trades below the 20 and 100-day MAs with immediate support at 5828 and 575 while the 200-day MA rests at 5733.
If there is to be a recovery, the S&P 500 will face a challenge at 5910 and 5959 before the 6000 and 6025 handles come into focus.
S&P 500 Daily Chart, February 28, 2025
Source: TradingView.com
Support
- 5828
- 5757
- 5733
Resistance
- 5910
- 5959
- 6000
- 6025
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