Is Lower Inflation A Green Light For 2024 Interest Rate Cuts? Markets Are Ending The Year 'Surprised,' CIO Says
Portfolio Pulse from Piero Cingari
The Personal Consumption Expenditures (PCE) index inflation dropped to its lowest since March 2021, leading to market expectations of interest rate cuts in 2024. Economists are debating the Federal Reserve's next moves, with some cautioning against premature rate cuts due to robust GDP growth and low unemployment. The PCE report, along with mixed economic data, influenced the stock and bond markets, with slight increases in SPY, QQQ, and IWM, and a marginal rise in Treasury yields. The SPDR Gold Trust (GLD) also saw a 0.4% increase.
December 22, 2023 | 5:42 pm
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SPDR Gold Trust (GLD) reported a 0.4% increase, with gold prices rising, potentially in response to the PCE inflation data.
Gold, often seen as an inflation hedge, may rise on lower inflation data, leading to the increase in GLD.
CONFIDENCE 75
IMPORTANCE 55
RELEVANCE 65
POSITIVE IMPACT
iShares Russell 2000 ETF (IWM) outperformed large-cap indices with a rally of 1.1%, possibly due to the lower inflation figures.
Lower inflation is a positive signal for small-cap stocks, which are more sensitive to economic changes, hence the rally in IWM.
CONFIDENCE 80
IMPORTANCE 65
RELEVANCE 75
POSITIVE IMPACT
Invesco QQQ Trust (QQQ) also experienced a modest increase of 0.2% amid the release of the PCE inflation data.
The tech-heavy QQQ may benefit from a dovish monetary policy outlook, reflected in the modest increase after the inflation report.
CONFIDENCE 80
IMPORTANCE 60
RELEVANCE 70
POSITIVE IMPACT
SPDR S&P 500 ETF Trust (SPY) saw a slight uptick of 0.3% following the PCE inflation report and mixed economic data.
The drop in PCE inflation may lead to a more dovish Fed, which is generally positive for equities, hence the slight uptick in SPY.
CONFIDENCE 80
IMPORTANCE 60
RELEVANCE 70