PCE Preview and S&P 500 Forecast: Economic Insights Amid Inflation Concerns

The Personal Consumption Expenditures (PCE) Price Index, which is the Federal Reserve’s preferred measure of inflation, is set to be released this Friday.

Market expectations suggest that the core PCE, which excludes the more volatile food and energy prices, could indicate a month-over-month increase of 0.3%. For the annual figures, core inflation is projected to show a gain of 2.6%, while the headline inflation figure could stand at 2.4%. These anticipated numbers indicate only a slight cooling compared to December, pointing out that inflationary pressures are still running above the Fed’s target of 2%.

Signs of Stalling in the US Economy?

Recently released US economic data have not performed as well as expected, raising concerns that the economy might be stalling. The sentiment in the market has soured over the last few weeks, particularly following the notable rise in the Consumer Price Index (CPI), which has added to overall market anxiety.

The current Fear & Greed Index, which registers at 22, suggests that fear is dominating market dynamics right now, leading to a very cautious approach among investors. It would not be surprising to see a rebound in the US stock market, given the extreme levels of fear present.

Earlier this week, Q4 2024 US GDP data showed that the economy expanded by 2.3%, which represents the slowest growth rate recorded in the last three quarters, down from 3.1% the previous quarter. This aligns with earlier estimates. Personal consumption was the primary growth driver, increasing by 4.2%—the fastest rate since the start of 2023—with spending on goods rising by 6.1% and services by 3.3%.

Exports fell slightly less than anticipated, decreasing by 0.5%, while imports saw a sharper decline of 1.2%, both contributing positively to economic growth. Government spending was revised upwards, showing a growth of 2.9%. However, private inventories slightly hampered growth more than previous estimates indicated.

On the downside, business investments declined more than projected, dropping by 1.4%, predominantly due to a significant decrease in equipment investments and no growth in intellectual property investments. On a brighter note, residential investments experienced a more than expected increase.

Across the year 2024, the economy recorded a growth rate of 2.8%.

Despite these mixed economic indicators, comments regarding tariffs from President Trump have once again impacted market sentiment. He reiterated that reciprocal tariffs are still planned to be put in place by April 2, and tariffs affecting Mexico and Canada are scheduled for March 4.

The Impact of Tariff Threats on Inflation

Concerns over tariffs are weighing heavily on global markets. OPEC+ is currently facing disagreements about a potential output increase in April, which has tariffs cited as a significant concern.

The main worries related to tariffs are their potential impacts on inflation and broader global economic growth. Inflation fears are escalating in both the US and globally, with central banks cautioning about the risks associated with rising inflation.

The recent hot CPI print led to significant rises in consumer sentiment and confidence, indicating rising inflation expectations over the next twelve months. This situation does not reflect well for consumers hoping for interest rate cuts in 2025.

Nonetheless, Fed Chair Jerome Powell emphasized the significance of the upcoming PCE data after the previous inflation figures were released, heightening the anticipation for tomorrow’s data release.

My expectation for the data release is that it will align closely with market estimates, which may initiate some short-term fluctuations in the market before it stabilizes and finds a new direction.

Technical Outlook for the S&P 500

From a technical perspective, the S&P 500 is currently in bearish territory, having fallen below critical support levels. The index has breached the lower high at 5910, trading beneath both the 20-day and 100-day moving averages. Immediate support levels have been established at 5828 and 575, with the 200-day moving average positioned at 5733.

If there is any opportunity for recovery, it will face significant resistance around the 5910 and 5959 levels before the 6000 and 6025 thresholds come into play.

S&P 500 Daily Chart

In summary, it is essential for investors to stay alert as the PCE data release approaches, keeping a close eye on potential market reactions and overall economic trends.

PCE, S&P500, Economy, Inflation, Tariffs