PCE Preview and S&P 500 Forecast: US Economy and Inflation Fears

The Fed’s favored inflation indicator, the US Personal Consumption Expenditures (PCE) Price Index, is expected on Friday. Market anxiety has escalated due to recent US economic data that exceeded expectations. Market worries about inflation and the global economy have increased due to President Trump’s tariff threats. Technically speaking, the S&P 500 has broken essential support levels and is in negative territory.

PCE Preview and S&P 500 Forecast: 

This Friday, we will see the release of the Federal Reserve’s favored inflation indicator, the Personal Consumption Expenditures (PCE) Price Index.

According to market predictions, the core PCE—which does not include volatile food and energy prices—may rise by 0.3% every month, with core inflation and the headline number expected to grow by 2.6% and 2.4% annually, respectively. These forecasts indicate that inflationary pressures are higher than the Fed’s 2% objective, with a slight cooldown in December.

The US economy is slowing, as seen by this week’s lackluster data. Over the past several weeks, we have witnessed a damaging decline in market mood, exacerbating the steep increase in the US CPI. The market is mainly driven by fear, as indicated by the current Fear & Greed Index of 22, which shows that investors are highly cautious. Given the high levels of anxiety, a recovery in the US stock market would not be shocking.

The Q4 2024 US GDP statistics were released earlier on Thursday. After growing by 3.1% in the quarter of 2024, the US economy increased by 2.3% in the fourth quarter, its worst growth rate in three quarters. This is consistent with previous projections. With rises in expenditure on commodities (6.1%) and services (3.3%), personal spending was the primary driver, expanding by 4.2%, the fastest since early 2023.

Growth was positively impacted by imports falling more (-1.2% vs. -0.8%) and exports falling somewhat less (-0.5% vs. -0.8%) than anticipated. Government spending increased more than expected (2.9% vs. 2.5%). Private inventories, however, had a more minor growth-reduction impact (-0.81 percentage points as opposed to -0.93).

Due primarily to a more significant reduction in equipment investments (-9%) and no growth in intellectual property investments (0% vs. 2.6%), business investments fell more than anticipated (-1.4% vs. -0.6%). Positively, residential investments increased by 5.4% compared to 5.3%, which was a little more than anticipated. The economy expanded by 2.8% in 2024.

Despite the weak report, President Trump’s remarks on tariffs today boosted the US Dollar Index and hurt US equities. While tariffs in Canada and Mexico are scheduled for next Tuesday, March 4, President Trump stated that retaliatory tariffs are still on track for April 2.

Tariff Threat to Inflation:

Considering the possible outcomes of tariffs, they continue to impact international markets. Tariffs are a significant issue in the OPEC+ dispute over a potential supply increase in April.

The main issues surrounding tariffs currently are their effects on inflation and the global economy. With central banks all cautioning about the upside risks to inflation, inflation worries have been growing both domestically and internationally.

This month’s US CPI report was hot, as 12-month inflation predictions increased significantly in Michigan consumer mood and CB consumer confidence. For customers looking for more rate decreases in 2025, this does not auger well.

However, when the inflation print was revealed a few weeks ago, Fed Chair Jerome Powell emphasized the significance of the PCE statistics. The importance of tomorrow’s data release has increased as a result.

Technically speaking, the S&P 500, daily, has broken below the last lower high print at 5920 and is now solidly in negative territory. With immediate support around 5828 and 575 and the 200-day MA at 5733, the price trades below the 20 and 100-day MAs. Before the 6000 and 6025 handles become apparent, the S&P 500 will encounter resistance at 5910 and 5959 if a recovery is to occur.