I’ve been waiting for the Personal Consumption Expenditure (PCE) number all week long.
In fact, I said I wouldn’t be placing any trades until that number gets released, as traders know this is the Fed’s favorite indicator of inflation.
Well, we got that number – and it is definitely intriguing.
But not in the way that you think. In reality, it didn’t have too much of an impact. If it had been particularly negative, well, that might have moved the needle.
But with everything going on in the financial sector, there are more pressing things drawing the attention of the market.
That said, the Fed still is paying attention to that number. And, in all honesty, while the numbers we saw weren’t earth-shattering drops, in certain ways, that’s better.
Now, the reason I say that a small drop was “better” is because the Fed doesn’t want to see volatility in this reading.
If we had seen a drastic swing, that would have been more of an indicator of chaos than cooling inflationary waters.
With this drop, now the Fed can start to have the conversation of whether or not it’s going to respond to what’s been going onto the market and allow itself to buy into any of the positive momentum.
This isn’t going to be a rate cut right out of the gate. They don’t want to spend their bullets too soon, especially considering how long it’s taken to even load the figurative gun.
Instead, I expect a slow rolldown.
It should come as no surprise that the area I’m watching closest in the aftermath of this announcement is the financials. But I’m also going to keep my eyes on retail.
The last time we saw this number come out, sometime around February 24, retail was the sector that was impacted the most.
After all, the discussion we’re having here is more or less centered around how people are spending their money.
I said on the morning show with Garrett that I was going to be watching the iShares Russell 2000 ETF (IWM) closely, particularly the $175 level.
At that point, it was sort of bouncing around that mark. If it rejected the $175 level and dropped, well, that wouldn’t be a good thing for the market.
However, the fact that it broke clean through that $175 level – it’s trading above $178 at the time of my writing this – tells me we’re in store for a pretty strong start to the month of April on the markets.
That being said, it’s not just rainbows and sunshine once April kicks off. A lot of that positive momentum will be founded upon the idea that June will break rate decreases.
As I mentioned before, it’s far more likely that the Fed will want to give this time to breathe before pulling the trigger. They only have one crack at this, and as Eminem said, they don’t want to miss their chance to blow.
This is a pause, not a pivot. So, we’ll watch the fed fund futures and figure out where everyone’s putting their money.
The next thing we’re going to be marking our calendars for is the jobs report that’s due next Thursday (don’t forget, the markets are closed for Good Friday).
Jobs have been the one thing that has been telling people that the soft landing could be working. People are still finding work.
We’ll see if that holds true when that number gets released next week.
As I said, April is shaping up to be a strong month – at least in the beginning.
We’re going to have to keep our eyes on market sentiment though because as we saw with the PCE number (or as we didn’t see), sentiment is driving the ship here.
So, while we can’t know for sure the Fed’s timeline, we can at least get a read on the market’s expectation of the Fed’s timeline.
The CME FedWatch Tool tells you where people are betting, more or less, in terms of the fed fund futures.
This tells you what the market’s expecting the Fed to do, which in the sentiment-driven current market, is arguably more helpful.
We’ll keep our eyes on that moving forward. But for now, we’ve got an interesting April ahead of us.
I’ll see you bright and early Monday morning to figure out how we’re going to attack it.
March 31 2023