PCE Preview and S&P 500 Forecast: US Economy, Inflation Anxiety, and Tariff Concerns

The upcoming release of the Personal Consumption Expenditures (PCE) Price Index on Friday is eagerly awaited, as it is the Federal Reserve's preferred measure of inflation.

Recent economic indicators from the US have been underwhelming, raising concerns in the market. Given that these weak data points may signal a stalling economy, investor sentiment has turned cautious.

The market's apprehension is compounded by tariff threats from President Trump, increasing worries about inflation and global economic health.

The PCE is expected to show a monthly increase of 0.3% in core inflation, which excludes volatile food and energy prices. Yearly projections suggest a rise of 2.6% for core inflation and 2.4% for the headline measurement. These forecasts indicate that inflation remains above the Fed's 2% target, despite signs of modest cooling from the previous month.

Signs of Economic Weakness

This week's data releases painted a concerning picture. For instance, the US GDP growth rate for the fourth quarter of 2024 was reported at 2.3%, the slowest growth in three quarters, down from 3.1% in the prior quarter. This reduction aligns with earlier forecasts.

The primary contributor to this growth was personal spending, which increased by 4.2%, marking the fastest growth since early 2023. This rise was supported by encouraging boosts in both goods (6.1%) and services (3.3%). On the trade side, exports declined slightly less than expected, and imports fell more than anticipated, contributing positively to the growth figure. However, a reduction in private inventories and a drop in business investments detracted from overall economic performance.

Concerns about tariffs have added to the economic dread. Trump’s announcement of potential tariffs on imports from Mexico and Canada has weighed heavily on the stock market and reinforced the upward pressures on inflation.

Impact of Tariffs on Inflation

The implications of tariffs extend beyond the US, creating waves in global markets. As OPEC+ discusses production strategies, the threat of tariffs looms over their decision-making process.

Market fears surrounding tariffs are primarily connected to their influence on inflation and broader global economic growth. Recently, inflation fears have surged, prompting multiple central banks to issue warnings about the possible risks. For instance, the latest US Consumer Price Index (CPI) report highlighted heightened inflation rates, while consumer sentiment and confidence climbed notably regarding inflation expectations.

These developments raise concerns for those anticipating further rate cuts from the Federal Reserve in 2025. Fed Chair Jerome Powell emphasized the significance of the upcoming PCE data, underscoring the anticipation surrounding its release.

Technical Overview of the S&P 500

On the technical side, the S&P 500 has entered bearish territory after breaching crucial support levels. The index currently trades below its 20-day and 100-day moving averages, indicating a negative trend. Immediate support levels are noted at 5828 and 5757, while the 200-day moving average sits at 5733.

Should there be a recovery, the S&P 500 will encounter significant resistance at levels of 5910 and 5959 before approaching the 6000 and 6025 mark.

Overall, the current market landscape is characterized by fear and uncertainty, and the upcoming PCE data release could serve as a pivotal point for traders looking to navigate these turbulent conditions.

PCE, Inflation, Tariffs, Economy, S&P500