PCE data from February 2023 - weekly market recap, March 27-31

Apr 3, 2023
2 min read

Updated: Apr 9, 2023

Friday, March 31, the last day of March, February personal Consumption Expenditures index has been released prior to the market opening. Personal consumption expenditures index or PCE is an important inflation monitor like CPI that is used to track U.S households spending behaviors within the month. The main differences between CPI and PCE are the formula, the weight, and the scope. For instance, the PCE index used the Business Survey instead of the Consumer Expenditure Survey that CPI referred to. In addition, the PCE index measures a bigger scope of expenditure behaviors outside of what CPI would capture.

https://www.newcapital.com/insights/MFN-Core-PCE-inflation-rises--signalling-continued-inflation-pressures-in-the-US.html

The result of February PCE data of 5.0% is better than expected, as MoM PCE increased by only 0.3% compared to the 0.5% estimated and 0.6% increase in January. The YoY Core PCE also resulted to show a relief sign. Core PCE increased only by 4.6% compared to one year ago, and is 0.1% lower than the estimated consensus. Looking back on the market reaction, the published data seems to be good news, especially after recent bank systematic concerns to rate hikes and the last FOMC meeting.

The market on Friday ended up rallying for 1.26% in Dow Jones, 1.44% in S&P 500, and 1.74% in Nasdaq. The market also went back to the August high point last year. The last week of March closed strong as every day in the week turned out to be higher than the intraday lowest point, in which the index increased over 3.5% within a week. The market has rallied over 20% from 2022 December to the end of 2023 first quarter, which is also the highest quarterly performance since 2020. Hence, it's interesting to see if we are really out of the bear market and how is the market going to develop as it's a new month and a new quarter.

Articles

Cassella, M. (2023). The Fed’s Preferred Inflation Metric Dropped a Little. It’s Still High. Barron's.https://www.barrons.com/articles/pce-index-inflation-data-report-today-3d332d77

U.S. Bureau of Labor Statistics. (2011). Differences between the consumer price index and personal consumption expenditure price index. Focus on Prices and Spending. Vol2,(3). https://www.bls.gov/opub/btn/archive/differences-between-the-consumer-price-index-and-the-personal-consumption-expenditures-price-index.pdf

https://www.tradingview.com/chart/lINnSfWv/?symbol=NASDAQ%3AQQQ (lines drawn by me)

$QQQ is ETF tracking of the NASDAQ index.

Liang's comment

The inflation is still a real issue, even FED has shown dove signs on rate hike due to the incidents on banking sectors.

The rallies of the week doesn't mean the market and macroeconomic condition is optimistic. In some ways, Friday of March 31 was expected to show strength as the whole week was moving in the upward trend despite having extremely low volume. The charts below also indicated we are likely to moving toward $320 ($QQQ). The biggest players in the market are algorithms hence the price action doesn't always represent the overall economic condition and market expectations.

We should expect certain degree of market drawdown next week. Overall, we wanted to see if the price of $QQQ can stay within the price range of $312-320 as it would mean strength. It's also interesting to see if the price would go higher than $320 and toward $330, as $330 was the highest point from the bounce last time.