With Wall Street just getting over a surprise six-session losing streak, investors are abuzz over the March Personal Consumption Expenditures (PCE) inflation report, due this Friday, April 26. Will the stock market crash?
Well, maybe.
Inflation has been the hot topic this year, with Wall Street eagerly awaiting the oft-hinted rate cuts Federal Reserve Chair Jerome Powell promised heading into 2024. Indeed, with inflation refusing to give in amid shockingly strong jobs and economic growth, the central bank has been given a sort of blank check to keep rates high for the foreseeable future. Depending on the results of this week’s PCE report, the Fed’s lifeline will either be extended or cut short.
If you recall, the March Consumer Price Index (CPI) report, released earlier this month, showed a surprisingly hot 0.4% jump in prices during the third month of the year, pushing annual inflation to 3.5%. This was notably higher than February’s 3.2% reading.
The report crushed Wall Street as analysts speculated that the Fed may hold off cutting rates until the end of the summer in an effort to lower prices.
The Fed-preferred PCE tends to follow a similar trend as the CPI, albeit while showing lower levels of inflation. As such, economists are poised to see a similar trend of red-hot price growth in March in this week’s PCE.
Stock Market Crash Fears Swirl on Underwhelming PCE Forecast
The Cleveland Fed’s Inflation Nowcasting tool predicts a 0.32% monthly jump in headline inflation and a 0.3% increase in the core PCE, which excludes Food and Energy.
If accurate, this would put PCE inflation at 2.65% annually in March, above February’s 2.5% PCE reading. This would confirm the CPI’s hawkish data, supporting the notion that rate cuts may not be coming anytime soon.
As it stands, investors are already looking ahead to the June policy meeting, assuming the May meeting won’t yield a rate cut. Unfortunately, the CME FedWatch Tool estimates there’s just a 16.2% chance of a rate cut in June. It does give a 41.2% chance of a rate cut in July, however. So that’s something.
Still, Wall Street will likely have to continue grappling with growing bearishness in the second quarter. Stocks are down more than 3% since the start of April, leaving some investors scratching their heads.
With inflation proving more stubborn than expected and rates likely to remain elevated, stocks have looked tenuous despite a strong Q1 performance.
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 InvestorPlace.com Publishing Guidelines.
