The stock market has been exhibiting some rather strange behavior lately.

You might even say it’s a bit like Dr. Jekyll and Mr. Hyde.

One week, the AI boom is the dominant character, led by stocks like NVIDIA Corporation (NVDA). The next week, it transforms into a market concerned with macro news.

This week, with two key economic reports on deck, it was the latter personality that won out.

On Tuesday, the Conference Board reported that the Consumer Confidence Index rose to 102 in May. That’s up sharply from a revised 97.5 in April, and it’s the first increase after three straight monthly declines.

Economists were expecting another decline, to 96 in May. This clearly rattled the market, as investors were hoping that signs of a weaker economy could push the Federal Reserve to cut key interest rates sooner rather than later.

And then this morning we got a fresh look at a key inflation measure – the Personal Consumption Expenditures (PCE) price index.

Investors have been on pins and needles to get their hands on the latest PCE data. They wanted to see any signs of hope that there is more progress on bringing down inflation.

I should point out that the core component of the PCE, which excludes food and energy prices, is the Fed’s self-professed measuring stick of choice. Fed Chair Jerome Powell has made it clear that the Fed wants to see the core PCE reading to be at 2% on an annual basis.

Now, in Tuesday’s Market 360, I gave a preview of economists’ expectations for the PCE. In short, economists were expecting the PCE to rise 0.3% in April, or 2.7% year-over-year. They were looking for the core PCE to post a 0.2% increase for April – compared to 0.3% in March.

So, how did things turn out? Well, the good news is that the economists actually got this one right. So, in today’s Market 360, we will take a look at the report and see if we can draw any conclusions about rate cuts later this year. I’ll also discuss how inflation jitters have weighed on the Treasury market recently, and why this could actually force the Fed’s hand. And then, finally, I’ll tell you about a major market catalyst on the horizon, and how you can profit.

Making Sense of the Latest PCE Reading

The PCE rose 0.2% in April, or 2.7% on an annual basis. That was in line with economists’ expectations and also lower than the 0.3% reading in March.

Core PCE, meanwhile, increased 0.2% in April and is up 2.8% in the past 12 months. Both rates were in line with economists’ forecasts. This also marks the same annual rate we’ve seen for the past two months – while April’s reading was the slowest month-over-month increase for the index so far this year.

Looking forward, the annual rate of the PCE should also improve in the coming months. Core PCE rose 0.3% in May 2023, but that will soon be cut off in the 12-month calculations. In turn, this will cause the annual rate to decline since core PCE only rose 0.2% in June 2023 and 0.1% in July 2023.

So, the good news is core PCE continued to tick lower. But as much as I hate to say this, folks, it’s not going to be enough to spur the Fed to cut rates just yet. We really need inflation to moderate further for the Fed to feel comfortable cutting rates. We also need consumers to resume discretionary spending to prop up the U.S. economy in order to achieve a true “soft landing”.

The Earliest the Fed May Cut Rates

I think the earliest the Fed will slash rates would be July 31. As of this morning, the CME FedWatch tool showed that investors were pricing a roughly 50-50 chance the Fed’s first rate cut will be in September.

Remember, the Fed does not want to step into the political spotlight, especially in a presidential election year. So, it will want to cut rates before the election really heats up and try to step back into the shadows.

Meanwhile, as I have said all along, the Fed has to be careful here. Key interest rates are already well above market rates and the Fed doesn’t want to fight bond rates. The Fed’s current target rate is 5.25% to 5.50%. The 10-year Treasury yield, meanwhile, is around 4.5%.

As a result, recent Treasury auctions have been a little nerve-wracking. While we did survive the auctions this week, it is becoming increasingly difficult to finance our large government budget deficit at current rates. (I realize it may seem a little boring to talk about the bond market, but the fact of the matter is this corner of the market is what makes the world go round..)

Beginning next week, we’re going to see what happens to our Treasury market as Europe starts to cut key interest rates. Frankly, I wouldn’t be surprised if it ends up putting downward pressure on our rates and forces the Fed’s hand to cut rates and get back in line with market rates.

Prepare for the Next Wave of Profits

It will also be interesting to see what happens when President Biden and former President Trump take to the campaign trail. I expect both candidates will promise us everything and anything under the sun in the upcoming months. And historically, consumer confidence and retail sales tend to get a boost in election years.

But if Donald Trump is elected president this November, I predict that it will spark a growth explosion without precedent.

But not in the way you might think…

You see, Trump is all about business. And if he returns to the Oval Office, this first act could spark a Second Wave of the AI boom.

I recently flagged a handful of stocks that could soar from Day One of Trump’s presidency – or even sooner. I also released a special presentation as well as a slate of brand-new reports detailing how you can profit.

Go here to access my research now.

(Already a Growth Investor subscriber? Click here to log in to the members-only website now.)

Sincerely,

Louis Navellier

Editor, Market 360

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

NVIDIA Corporation (NVDA)