Price Growth Slows, Stocks Gain

Today's data showing slower inflation growth could be welcomed by a market that's on the edge of its seat about the next interest rate move. The Personal Consumption Expenditures (PCE) price index, watched closely by the Fed, rose just 0.3% in February, versus analysts' expectations for a rise of 0.5% and down from 0.6% in January.

Stock index futures generally added to gains following the data, which helped ease one set of market worries. If the data had been screaming hot, it would have complicated things by working against growing impressions that the Federal Reserve might be able to pause rate hikes at some point this year.

The S&P 500® index (SPX) is on pace for its third-straight positive week and enters the final day of Q1 up more than 5% for the year, but from a longer-term perspective it remains within the 3,800 to 4,100 range that it's been in most of 2023. It's encouraging to see the recent rally in the face of Treasury yields that have mostly steadied following their recent retreat, and amid what appear to be growing expectations of at least one more rate hike.

The question following today's relatively benign inflation data is whether broad-based buying across sectors continues today after being a feature Wednesday and Thursday. Investors have shifted their focus from simply buying info tech and Treasuries and embraced some of the more cyclical parts of the market like industrials and materials, which could bode well if we hope to see a more extended rally.

Companies like Caterpillar (CAT), Boeing (BA), and Deere (DE) drew buying interest this week, and these are the types of firms that tend to do well in a growing economy. Still, technology shares have led the charge globally this quarter, with the Nasdaq-100® (NDX) surging 18.5%, the most since mid-2020.

Morning rush

  • The 10-year Treasury note yield (TNX) fell 3 basis points to 3.52% after the PCE inflation data.

  • The U.S. Dollar Index ($DXY) inched higher to 102.27.

  • The Cboe Volatility Index® (VIX) futures slipped to 18.97.

  • WTI Crude Oil (/CL) rose to $74.90 per barrel.

Just in

The price you pay: While headline PCE prices increased 0.3% in March, the core reading—which strips out food and energy—also rose 0.3%, versus 0.5% consensus expectations on Wall Street.

Headline and core PCE both fell from January's readings of 0.6% and 0.5%, respectively. Goods inflation, which has been weakening, rose just 0.2% in February; more importantly, services inflation—which had been surging—rose just 0.3%.