Another week, another important piece of inflation data for the market to digest. The personal spending and income report, out this coming Friday, has the Federal Reserve’s preferred measure of inflation: the core personal consumption expenditure (PCE) price index. The Fed likes this reading because it looks at changes in consumer behavior, including whether buyers are substituting goods based on prices. In comparison, the consumer price index (CPI), released this past week, only tracks price changes over time. The PCE price index report is even more important following the Fed’s decision this week to raise rates by 25 basis points, as the Street tries to determine the likelihood of the central bank pulling off a soft landing, or if it is hiking us into a recession. It was a positive week for the major averages, despite some midweek volatility driven by comments from Treasury officials. In his remarks after the rate decision, Fed Chair Jerome Powell said a rate cut by year-end was not the committee’s base case, meaning he doesn’t see a rate cut in 2023. Shortly thereafter, Treasury Secretary Janet Yellen, speaking to the Senate Appropriations subcommittee, appeared to double back on the idea that all bank deposits nationwide would be guaranteed by the U.S. government, pushing stocks lower. The PCE price index and other inflation reports face heightened scrutiny in the coming months as the market is becoming more at odds with the Fed’s base case. Consider the CME FedWatch Tool , which tracks market experts’ expectations, shows a pause at the May meeting (88% probability), followed by a cut of 25-50 basis points at the July meeting. The market is now placing the highest likelihood on the U.S. entering 2024 somewhere in the 375-425 basis-point range, well below the current target rate of 475-500. Part of the reason behind the market’s unwillingness to accept the Fed’s commentary likely comes from two key factors. First, there is the view that the Fed is looking at where we are now and not so much where we are headed. The Fed tends to focus on backward-looking macroeconomic updates, while the market looks at real-time commodity price fluctuations, along with forward-looking updates from corporate management teams during earnings calls and investor conferences. Second, there are mounting concerns about the banking sector. While the magnitude of the problem is up for debate, most experts agree that the Silicon Valley Bank blowup and resulting tightening of lending standards by the banks will constrain financial conditions overall. “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. … The question for us though is how significant will that be — what will be the extent of it, and what will be the duration of it,” said Powell. Exactly how many basis points of tightening these stricter lending standards are equivalent to remains to be seen. However, the Fed was certainly not factoring the banking turmoil into its thinking a month ago and as a result, many believe that the Fed will have to reverse course. Put another way, if the banking crisis is worth 100 basis points of tightening, then the Fed may have gone 100 basis points too far without being able to know it. Therefore, the thinking would be that they need to cut by 100 basis point in order to get back on track. Whether Powell or the market proves to be correct will depend entirely on the path of inflation. Prices alone will determine where interest rates will go. No portfolio companies reported earnings this past week and none are on next week’s calendar. However, here are some other earnings and economic numbers to watch in the week ahead: Monday, March 27 Before the bell: BioNTech (BNTX), Carnival (CCL) After the bell: PVH Corp (PVH) Tuesday, March 28 Before the bell: Core & Main (CNM), Elbit Systems (ESLT), IHS (IHS), McCormick & Co (MKC), Walgreens Boots Alliance (WBA) After the bell: Cal-Maine Foods (CALM), Dave & Busters (PLAY), Jefferies Financial (JEF), Lululemon (LULU), Micron (MU) 10 a.m. ET: Consumer Confidence Wednesday, March 29 Before the bell: Cintas (CTAS), Paychex (PAYX) After the bell: Concentrix Corp (CNXC), HB Fuller (FUL), RH (RH) 10 a.m. ET: Pending Home Sales Thursday, March 30 Before the bell: AngioDynamics (ANGO) After the bell: Skillz (SKLZ), BlackBerry Ltd. (BB) 8:30 a.m. ET: Initial Claims 8:30 a.m. ET: Gross Domestic Product; Price Index Friday, March 31 Before the bell: 8:30 a.m. ET: Personal Spending & Income 8:30 a.m. ET: Personal Consumption Expenditures Club trades of the week Despite oversold conditions in the market this past week, as measured by our trusted S & P 500 Short Range Oscillator , we were cautious. We made only one buy : 25 shares of Pioneer Natural Resources (PXD), bringing ownership position in PXD to 175 shares and increasing its portfolio weighting to 1.26% from 1.09%. Sometimes an exogenous event, like a banking crisis, trumps our discipline to buy enthusiastically when the Oscillator flashes oversold. Looking back One day before Wednesday’s Fed rate hike and the dueling bank comments from Powell and Yellen that confused and sunk markets that day, February existing home sales were reported Tuesday to have jumped a much stronger than expected 14.5%. It was the first monthly increase in a year and the largest increase since July 2020. Buyers came back into the housing market as mortgage rates followed bond yields lower on the banking troubles. On Thursday, initial jobless claims for the week ending March 18 came in at 191,000, a decrease of 1,000 from the prior week and below the 197,000 expected. Also Thursday, we learned that in February, new home sales increased 1.1% month over month, to a seasonally adjusted annual rate of 640,000. That was a tad below the 650,000 rate analysts were looking for. As for the broader market this past week, the S & P 500 Communication Services sector led to the upside followed by Energy and Materials. Real Estate led to the downside followed by Utilities. The U.S. dollar index hovered just above 103. Gold traded at nearly $2,000 per ounce. West Texas Intermediate crude prices remained in the upper-$60s per barrel region. The yield on the 10-year Treasury eased back slightly to just under 3.4%. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust is long.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed budget request for 2024, on Capitol Hill in Washington, DC, March 16, 2023.
Andrew Caballero-reynolds | AFP | Getty Images
Another week, another important piece of inflation data for the market to digest.
The personal spending and income report, out this coming Friday, has the Federal Reserve’s preferred measure of inflation: the core personal consumption expenditure (PCE) price index. The Fed likes this reading because it looks at changes in consumer behavior, including whether buyers are substituting goods based on prices. In comparison, the consumer price index (CPI), released this past week, only tracks price changes over time.
