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Stocks closed mixed yesterday (albeit mostly lower), after trading higher for much of the day. The Nasdaq was the lone winner by the close with 0.24%.
Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research
  

Yesterday's PCE Inflation Came In Softer Than Expected, Q2 GDP Was Stronger Than Expected, All Eyes On Friday's Employment Report

Stocks closed mixed yesterday (albeit mostly lower), after trading higher for much of the day. The Nasdaq was the lone winner by the close with 0.24%.

But it was a good day news-wise.

The Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge) came in much better than expected. The headline rate was up 0.3% m/m vs. last month's downwardly revised 0.1% (from 0.2%), and under views for 0.4%. The y/y rate came in at 3.4%, in line with last month's downwardly revised 3.4% (from 3.7%), and below estimates for 3.7%. The core rate (ex-food & energy) was up 0.2% m/m vs. last month's downwardly revised 0.1% (from 0.2%), and forecast for 0.3%, while the y/y rate was at 3.0% vs. last month's downwardly revised 3.0% (from 3.3%), and the consensus for 3.3%.

A solid reading. Granted, it's still too high. But it's moving in the right direction ? down. That's true for both the headline rate (which includes the volatile energy market), and the core rate (which tells me structural inflation is easing).

Not sure if that's enough to stem the Fed from raising rates again later this month by another quarter point. But another hike is not a done deal. And could very well lead to a pause. Either way, it was a better-than-expected read on inflation.

The final estimate for Q2'26 GDP came out yesterday as well. And it was raised from the previous estimate of 1.5% to 2.2%. A sizeable increase.

And looking ahead, the latest GDPNow forecast from the Federal Reserve Bank of Atlanta puts Q3'26 GDP, which was just updated yesterday, at 3.75%. That would be the fastest pace since Q4'23.

Yesterday's MBA Mortgage Applications fell -6.0% w/w with purchases down -4.3%, and refi's down -8.7%.

Retail Inventories were up 0.3% m/m vs. last month's upwardly revised 0.8% (from 0.7%).

Wholesale Inventories were up 0.7% m/m vs. last month's 1.3% and outlook for 0.3%.

The Chicago PMI jumped to 58.8 for September vs. last month's 47.1 and expectations for 51.0.

And the ADP Employment Report estimated that 90,000 private payroll jobs were created in September vs. August's 36,000 and views for 70,000.

Today we'll get the PMI Manufacturing Index, the ISM Manufacturing Index, Construction Spending, Weekly Jobless Claims, and the Challenger Job-Cut Report.

But the jobs report everybody is really waiting for is Friday's Employment Situation Report by the Bureau of Labor Statistics (BLS). The consensus is calling for 90,000 jobs to have been created in September (75K in the private sector and 15K in the private sector), with the unemployment rate holding steady at 4.1%.

All in all, there was plenty of bullish economic data out yesterday.

Market action was a bit peculiar. But September closed the month on a decent enough note. The Nasdaq was up for the month. And even though September is a notoriously tough month (historically the weakest month of the year), the S&P was only down -0.45% (less than a half percent).

Today marks the beginning of Q4. And that's great news since Q4 is historically the best quarter of the year for stocks. Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%.

So I am expecting a nice rally into the end of the year.

It won't be without it's volatility. But I'm expecting a strong finish.

And then I'm expecting another big gain again next year.

But first things first.

See you tomorrow,

, Zacks Investment Research

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