Dip, Buy, Soar – Post-PCE Predictions

As you can see from the VIX index, the market is now oversold, and we do expect a rally over the next few weeks. Stocks have typically performed well after the release of the PCE numbers. In fact, four out of the last four times PCE numbers have come out, stocks were higher a week or so later.

Personal Consumption Expenditures (PCE), the final economic report on the final day of the month of May, was in-line with expectations almost completely across the board. Personal Income came down 20 basis points (bps) month over month to +0.3%, as expected. Personal Spending, the only metric to break with estimates, came in at a cooler +0.2% (+0.4% expected), from a downwardly revised +0.7% in March.

Inflation is headed in the right direction, not at a fast pace, but still in the right direction. Initial claims for unemployment insurance ticked up 3,000 last week to 219,000, about in line with the consensus estimate of 218,000. They have been range-bound near this level since late-2021, reflecting robust labor demand and an ongoing economic expansion.  The Fed has to be very careful at this point because unemployment has ticked up just slightly, and I’m sure they are monitoring that.

Q1 real GDP growth was revised down to a 1.3% annualized rate from 1.6% initially, slightly better than the consensus estimate of 1.2%. It was led by softer consumer spending (mostly on durable goods) and a deeper decline in inventory investment that was partly offset by stronger state and local government spending and higher residential investment than previously estimated.