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Mini-Rally in Place Ahead of Q1 End, PCE Numbers

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Over the past five trading days — basically since market participants stopped worrying that a massive banking industry collapse was imminent — we’ve seen admirable strength: Up four of the past five sessions on the Dow and the S&P 500, three of five for the Nasdaq and Russell 2000. The S&P and Russell were the leaders for the past week of trading, +3.05% and +3.90%, respectively. The Dow and Nasdaq are up +2.84% and +2.28%, respectively.

In the past month of trading, only the Russell is in the red — and by a fairly deep -6.85%, considering the Dow is +0.60%, the Nasdaq +5.57%, the S&P +2.52% since the last day of February. Should things hold through tomorrow, it will be the second up-month in the first three of the year for all but the small-cap index. What’s exceptional about this is that it comes during the same month the collapse of SVB was reported. That did take the indices down fairly steeply three weeks ago, but all but the Russell have buoyed back impressively.

For today, the Dow gained another +142 points, +0.44%. The S&P gained +0.57% while the Nasdaq won the day again, +0.73%. Once more, the Russell lagged the field for the session, -0.18%. Today fairly nicely represents what we’ve seen over the past week of trading: large-cap tech names like Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) are the new safe haven in equities, with their still-strong margins and product offerings looking to weather any storm. Small-caps, on the other hand, may be more prone to hardship during a possible recession and/or further bank contagion.

Tomorrow morning brings us the most important economic metric of the week, Personal Consumption Expenditures (PCE) — that report Fed Chair Powell repeatedly cites when giving his press conference following monetary policy meetings with the Federal Open Market Committee (FOMC). In fact, including tomorrow we’ll get two PCE reports before the next FOMC meeting, which is scheduled for May 1st-2nd. Meaningful drops, especially year over year and in core prints (subtracting volatile food & energy costs), might help spur along a new dot-plot scenario for the Fed as early as the May meeting.

Thus, when we check PCE results Friday morning, the first thing we’ll look for on the year-over-year results is that the numbers go down (or stay flat), rather than tick up, as they did a month ago. Year-over-year headline reached +5.4% for January and +4.7% on core. These are off cycle highs +6.3% and +5.2%, respectively, in September of last year. Neither of last month’s numbers were remotely close to the Fed’s optimum +2% inflation, however, so regardless what becomes of tomorrow’s report, we’ll still have a long way to go.

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