Inflation, consumer spending misses push US stocks lower

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The Fed’s preferred inflation gauge ticked higher in February while consumer spending continued to disappoint, painting an uncertain picture for future monetary policy moves. 

Annual core Personal Consumption Expenditures Index (PCE) came in at 2.8%, a far cry from central bankers’ 2% target. Economists had projected a 12-month reading of 2.7%. Month over month, core PCE increased 0.4% — again higher than estimates, which were 0.3%. 

Inflation-adjusted consumer spending increased only 0.1% last month, coming in on the lower end of estimates. Analysts had hoped that warmer weather would jumpstart spending after a severe winter across most of the country. 

Spending came in below expectations, even as personal income increased 0.8%, compared with projections of a 0.4% increase. 

Expectations for longer-term inflation were also on the rise. The University of Michigan’s one-year projection for inflation is now 5%. It’s the third-straight month the index has increased. 

Fed funds futures markets are now pricing in a 13% chance the Fed opts to lower interest rates in May. 

Stocks, unsurprisingly, did not take the inflation news well. The S&P 500 lost as much as 1.5% in the first few hours of Friday’s session. The index is poised to end Q1 with its worst quarterly performance since 2023. The Nasdaq Composite slid almost 2% in the first half of the trading day.  

The doom and gloom may not last too long, though, eToro analyst Bret Kenwell said.

“Historically speaking, the S&P 500 tends to perform pretty well in mild inflationary environments where annual core PCE is between 2% and 4%,” he explained. “But investors don’t seem to care about historical statistics right now.”

You can say that again. Have a good weekend, everyone; here’s to hoping for a better performance next week.

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