Market Recovers on Dovish PCE Report Amid Shutdown Fears

The report indicates a positive shift in the stock market, influenced by a dovish US PCE report that alleviated earlier concerns from a government shutdown. The market showed strong breadth with a majority of stocks gaining, suggesting investor confidence despite inflation worries.

Date: 21-12-2024

AI Rating: 6

The report highlights a significant recovery in the stock market, which rose in response to the US PCE report that was weaker than expected. This shift indicates that investors may have previously overreacted to inflation fears following the FOMC meeting. The S&P 500, Dow Jones, and Nasdaq 100 all closed up, with notable gains seen across about 80% of Nasdaq 100 stocks. This breadth suggests robust investor sentiment.

However, concerns linger over the potential for a US government shutdown, which arose from Congress's inability to pass a funding bill. Such an event could adversely affect US economic growth, contributing to uncertainty in the stock market.

The PCE price index showed a year-on-year increase of +2.4%, reflecting an ongoing concern for inflation as this figure remains above the Federal Reserve's target of +2.0%. However, the slight decline in the monthly PCE index may provide the FOMC some leeway in potential interest rate adjustments, bolstering market confidence in the medium term.

Additionally, personal income growth of +0.3% m/m being slightly below expectations suggests that consumer spending may slow, which could affect corporate earnings negatively in the long run. Yet consumer sentiment is up, indicating resiliency.

The report also presents mixed signals for various companies: Nike's decline due to revenue guidance for a drop in the current quarter may dampen investor enthusiasm, while US Steel's warning of weaker Q4 earnings presents a similar concern. Conversely, the positive movement in Occidental Petroleum, following increased investment support from Berkshire Hathaway, offers a contrast to these declines. Overall, earnings forecasts remain critical to monitor as they will steer investor confidence moving forward.

Stocks: MU NVDA NKE X FDX OXY