Stock Market Crash Alert: Mark Your Calendars for Jan. 27

  • Stock market crash fears are ramping up ahead of Friday’s Personal Consumption Expenditures (PCE) report.
  • The inflation report is the last major economic data release before the Federal Reserve’s Feb. 1 Federal Open Market Committee (FOMC) meeting.
  • Should the PCE show easing inflation, the markets may yet rally, while rising prices will likely prompt a selloff.
Red stock chart on black screen heading downward, symbolizing a stock market crash
Source: Wongpradu

Fears of an impending stock market crash are running hot ahead of Friday’s Personal Consumption Expenditures report (PCE). In the midst of earnings season, the Jan. 27 inflation index may prove the biggest market mover. What do you need to know about this week’s PCE?

Well, the PCE has long been considered the Federal Reserve’s preferred inflation metric. As such, Friday’s data release will likely inform the Fed’s Feb 1. rate hike decision. Depending on the report, the Fed may opt to make some surprising changes to its anticipated tightening schedule.

Indeed, the central bank is predicted to go ahead with a quarter-point federal funds rate increase at its upcoming meeting. Some analysts believe it may be the final rate hike for the foreseeable future in the face of easing prices and rampant recession projections. In that regard, the upcoming PCE will provide some much-needed insight into the Fed’s game plan for 2023.

If you recall, in mid-December, the Fed released its updated economic projections for 2023. In the report, the central bank revealed that it now expects core PCE (excluding food and energy) to finish the year at 3.5%, above its target rate of 2%.

What does Friday’s PCE report mean for the stock market?

PCE Report Reignites Stock Market Crash Concerns

Friday’s PCE may ignite some notable shifts in the stock market. Especially early in the year, economic developments will likely set the narrative for the stock market going forward.

Not for nothing, for most of 2022, economic indicators proved major catalysts for equity markets. So far, that has still been the case in the new year.

The PCE will come as something of a reaffirmation of the December Consumer Price Index (CPI) report, which was released earlier in January. In the report, prices were shown to have fallen 0.1% month-over-month, representing a 6.5% yearly increase, including a 5.7% jump in core inflation.

The relatively promising CPI sparked an optimistic stock market response. Most major indices climbed a bit less than 1% on the CPI release, including the Nasdaq Composite, which enjoyed its first five-day climb since July off the back of the inflation data.

Friday’s PCE will also serve to validate previous deflationary trends. Prices have been on a notable downward trend lately across most price indexes, despite some holdouts.

Fed Vice Chair Lael Brainard said the following earlier this month:

“Core PCE inflation is running at a 3.1 percent annualized pace on a 3-month basis—below its 3.8 percent reading on a 6-month basis and 4.5 percent on a 12-month basis […] In that regard, housing services inflation remains stubbornly high at 8.8 percent on a 3-month basis—compared with 7.7 percent on a 12-month basis. Housing services are making an annualized contribution to core PCE that is more than double their contribution before the pandemic.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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