Global stocks were mixed this week as markets searched for direction ahead of Thursday’s highly anticipated Personal Consumption Expenditure (PCE) inflation report. As of Wednesday’s open, the S&P 500 was lower by about 0.50%, while the Russell 2000 (small cap index) was higher by nearly 2%. On the international front, both developed and emerging markets were mostly unchanged on the week.
Inflation and interest rates will remain a primary driver of markets in the near-term, and market participants will be paying close attention to Thursday’s PCE report, which is the Federal Reserve’s preferred measure of inflation. The rate of inflation is expected to accelerate month-over-month for both the headline and core indices, while year-over-year inflation is expected to decelerate. Separately, Wednesday morning brought the second estimate of GDP growth for the fourth quarter of 2023, which increased at a rate of 3.2%, less than the 3.3% initially estimated. The downward revision of 0.1% was primarily due to smaller-than-expected inventory growth, which was offset by upward revisions in government and consumer spending. Overall, economic growth came in at 2.5% for the entire year of 2023, avoiding a recession by a wide margin. Looking ahead to the first quarter of 2024, data from the Atlanta Fed’s GDPNow data shows an estimate for GDP of 2.3% as of Feb. 27.Â
Against the backdrop of a resilient economy and sticky inflation, recent comments from Fed officials indicate the central bank isn’t in any hurry to cut interest rates without more evidence that inflation is softening. Notwithstanding a significant surprise on the inflation or economic front, we continue to believe the Fed likely will keep interest rates steady for the next two meetings, before potentially initiating a rate cut in June.
Source: GSAM, CNBC, JPMorgan
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