The S&P 500 leaped higher in early Thursday trading action even though the Federal Reserve’s favored inflation measure, the Personal Consumption Expenditures (PCE) price index, recorded a year-on-year increase of 3.3%.
The PCE for July came in higher than June’s 3% and matched economists’ expectations.
The core PCE index, which the Federal Reserve closely monitors to gauge underlying inflation trends, increased marginally from 4.1% in June to 4.2% in July, also meeting economists’ estimates, according to data issued by the Bureau of Economic Analysis.
Personal income saw a slight growth, and personal spending spiked, ahead of market forecasts.
S&P 500 Rises, But What Do Economists Think?
“No surprises in this morning’s inflation data,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.
“Both the month-over-month and year-over-year readings for both headline and core came in exactly as expected,” Zaccarelli said. “The lack of an inflation surprise to the upside should be cheered by markets. However, it is unlikely to move the Fed’s bias towards leaving rates unchanged at their next meeting.”
As inflation remains contained, it’s unlikely the Fed will raise interest rates again this year, Zaccarelli said. Resilient consumer spending and low unemployment supports the market’s ongoing rally.
“We are positioned for the rally to continue and broaden out,” he added.
Harris Financial Managing Partner Jamie Cox explained that the data confirms what markets already knew.
“The consumer remains strong due to a resilient labor market, and disinflation continues despite a small energy-related uptick over the summer,” Cox said.
Cox highlighted the 1.2% year-over-year drop in rents as a factor contributing to some much-needed relief on the inflation front. “If that continues, the inflation data will continue to come the Fed’s way and keep them off of the pedal on further rate hikes.”
Quincy Krosby, Chief Global Strategist for LPL Financial, said the PCE index has been moving in a favorable direction. However, core inflation remains “stickier” than anticipated. “This will keep the data-dependent and ‘agile’ Fed more likely to raise rates again this year.”
Despite the disinflation trend, the Fed needs to see the numbers decline further before claiming success. Krosby mentioned, “Futures in the equity market remain positive as ten-year Treasury yields inch lower.”
Overall, the economists generally viewed July’s PCE data as a positive or neutral influence on the Fed’s upcoming decisions and the market at large. With inflation largely in line with expectations and consumers demonstrating a strong ability to cope with higher prices, it appears that the Fed may be less inclined to hike rates in the near term.
The S&P 500 opened 0.14% higher over Wednesday’s close and is trading up 0.2% higher right now.
Produced in association with Benzinga
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