PCE Inflation Increased In Line With Expectations

Yahoo

4 hours ago

It's been an eventful week in terms of stock market information, leading to new all-time highs — or very near — on the major indexes. That doesn't mean all the news was great; it does mean that the biggest potential headwinds have thus far missed the marketplace, and may have already blown past us.
Take tariffs, for instance. On April 9th, as indexes were falling off a cliff for a week of trading, President Trump pushed pause on his reciprocal tariff initiatives — +20% for the EU, +25 for auto imports, +49% on Vietnam, etc. — for 90 days. Yesterday, just a couple weeks from the end of that 90 days, a White House spokeswoman said those tariff deadlines were 'not critical.' Market participants rejoiced, taking this news to mean those reciprocals have been removed completely.
It hasn't led to any firm trade deals with any of the U.S.'s trading partners, and now with the reciprocal tariff threat removed, they may not come at all. The U.S. has put a +10% tariff on imported goods, which so far looks to be absorbed reasonably well in the economy. There is also a framework of a new trade deal with the UK, but based on the circumstances that followed, we may expect no hard news coming on this front, either.
The other threat this week came from tensions in the Middle East between Israel and Iran, into which the U.S. engaged last weekend, bombing nuclear development sites within Iran. Uncertainty gripped the markets to start the week, but as each day passes without a major international incident traced to this series of events, investors have grown comfortable in its bullishness.
Pre-market futures are up this morning again. The Dow has amassed +160 points, the S&P 500 +20 and the Nasdaq +85 points. Bond yields are down nearly 20 basis points (bps) from this time a week ago: the 10-year today stands at +4.26%, the 2-year +3.73% and the 30-year — which gained prominence after tipping +5% a couple weeks ago — stoutly holds at +4.82%.
This morning, the latest Personal Consumption Expenditures (PCE) report has been released. For the month of May, the headline PCE Index month over month was in-line with expectations at +0.1%. This matches the previous month's unrevised headline, as well. Year over year PCE was also as expected: +2.3%. The prior month was revised up 10 bps to +2.2%.
Stripping out volatile food and energy prices, the core PCE level month over month reached +0.2% — higher than the +0.1% expected and the highest level since February. Core PCE year over year reached +2.7%, following +2.6% in April — both of which are +10 bps higher than anticipated.
However, on Personal Income for May we swing to a negative -0.4% from an expected +0.3%, the first negative print since September of 2021, when the Covid pandemic was finally winding down. It also amounts to a big drop from the downwardly revised +0.7% the previous month. Personal Spending swung to -0.1% from an estimated +0.1%, while Real Spending sank to -0.3% from 0.0% projected.
Here's how this data might be chalked up to tariff distortions: those earlier higher-than-normal levels in February, March and April were pretty clearly a pull-forward of tariff realities to come. Today's big drop in spending likely has less to do with a weakening consumer than it does an unwinding of those earlier pre-tariff stockpiles. Now, with tariff levels beginning to disappear, we may expect a smoothing-out of this data over time.
Finally, Consumer Sentiment from the University of Michigan survey came in as expected for June at 60.5. This follows something of a trough the prior three months, which struck three-year lows in April and May at 52.2. Both the assessment of current conditions and future expectations jumped from somewhat depressed prior levels.
For now, attention pivots back to Capitol Hill, where Republican senators continue to toil over forging a Big Beautiful tax-cut and anti-immigration Bill to present to President Trump by the 4th of July — one week from today. It seems from this vista to be an uphill slog; for one reason, the changes made in the Senate means the revised bill may not re-pass the House. But if they somehow do get this bill over the finish line, it will bring profound changes to the market.
Perhaps this helps explain why markets are trading at all-time highs, as well?
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This article originally published on Zacks Investment Research (zacks.com).
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