Edge of Seats: Investors Await Friday's PCE Inflation Data, Digest Q4 GDP Rise Ahead of Tomorrow's Holiday Closure

Stocks are mixed ahead of tomorrow's holiday closure and PCE inflation data as investors focus on a surprise jump in Q4 GDP to an annualized 3.4%. All eyes are on tomorrow's report, but with markets closed no one can trade it until futures trading opens Sunday night. Look for lots of data from Japan and China starting tonight.

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Key Takeaways

  • Q4 GDP gets an upward revision to 3.4%, though pricing component stays tame

  • Fed’s Waller expresses hesitation on rate cuts ahead of tomorrow’s inflation data

  • Markets closed Friday despite PCE inflation release, leaving reaction to Sunday night

(Thursday market open) The quarter’s final trading day dawns with investors on tenterhooks awaiting crucial U.S. inflation data due Friday.

However, like the box scores from today’s opening day of Major League Baseball, they’ll have to simply read about the inflation report online. Markets are closed for Good Friday tomorrow, meaning there’s no chance to react to February Personal Consumption Expenditures (PCE) prices data until futures trading begins Sunday night.

This morning, major indexes were roughly flat and U.S. Treasury yields rose slightly as investors reacted to the U.S. government’s final estimate Q4 gross domestic product (GDP), which rose to an annualized 3.4% from the prior 3.2%.

Yesterday featured another record close for the S&P 500® index (SPX), which is now up 3% in March. It’s also up 10% this quarter, the best Q1 performance since a 13% advance in 2019. The Nasdaq Composite® ($COMP) is up 9.3% this quarter and 1.9% this month as investors build hopes for improved earnings growth and lower interest rates.

Wednesday’s rally took place without much participation from the biggest tech and communication services stocks, as both sectors barely rose. That’s a strong sign that there’s better breadth in the market and a rising tide is lifting more boats. In fact, the latest market breadth data shows financials, energy and industrials joining information technology as the sectors with the most components trading above their respective 200-day moving averages. For more, visit Schwab’s sector views.

Falling U.S. Treasury yields helped fuel yesterday’s gains.

“Treasury auctions have generally been well received this week, pulling yields lower,” said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research.  “The 10-year Treasury yield dipped below 4.2% Wednesday morning, but absent a big disinflationary catalyst, it should remain rangebound for the near term as long as optimism around a soft landing drives the markets.”

At the same time, Fed Governor Christopher Waller said last night there’s “no rush” to cut rates and that recent “disappointing” inflation data has him uncertain about progress on prices. He wants to see a “couple months” of better inflation numbers before cutting rates. And the data should “reduce the overall number of rate cuts or push them further into the future,” he cautioned.

Tomorrow’s PCE report comes ahead of remarks scheduled later that day from Fed Chairman Jerome Powell, so stay tuned for any possible quick reaction to the data from him.

Futures based on the SPX were down 0.1% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) fell 0.1%. Futures based on the Dow Jones Industrial Average® ($DJI) rose 0.01%.

With the markets closed tomorrow, Schwab Market Update will not be published. We’ll be back Monday. Here’s a Schwab video you can watch over the long weekend about investing during market highs, a timely topic.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) rose two basis points to 4.22%.
  • The U.S. Dollar Index ($DXY) rose to 104.72 after the GDP data, near its 2024 high.
  • The CBOE Volatility Index® (VIX) was steady at 13.
  • WTI Crude Oil (/CL) climbed 1.6% to $82.71 per barrel.
  • Bitcoin (/BTC) rose 2.7% to $70,500.

Just in

Weekly Initial Jobless Claims were a ho-hum figure of 210,000, slightly below the 213,000 consensus from Briefing.com. Continuing claims of 1.819 million were up slightly from a downwardly revised 1.795 million the prior week. Both remain near the low-end of the recent range and aren’t likely to have much impact on trading today.

The surprise this morning was GDP with the government’s final Q4 estimate rising to an annualized 3.4% from the prior 3.2%. It’s unusual to see the third and final estimate rise this much and points up how strong the economy got as the old year ended. Consumption led the way as consumer health was robust.

Nonresidential fixed investment was also revised higher, while these upward revisions were partially offset by a downward revision to private inventory investment.

On the prices side, the government kept Q4’s GDP deflator at 1.6%, below Wall Street’s consensus for a 1.7% rise. The deflator is a measure of inflation in prices of all goods and services produced in the United States, including exports.

“The final 4Q GDP release showed an economy that grew even more than initially reported, driven by an increase in personal spending,” Schwab’s Martin said. “Core prices were revised slightly lower, which is a positive for our soft landing outlook. The bond market barely flinched however, considering this is a look back at the fourth quarter of last year. All eyes are on tomorrow’s PCE report.”

What to watch

Friday’s February PCE prices report, the Fed’s favored inflation gauge, comes after the February Consumer Price Index (CPI) and Producer Price Index (PPI) triggered inflation concerns. Recent PCE reports painted a tamer picture of inflation than the CPI and PPI figures, in part because the PCE has a smaller footprint from shelter prices, which have stayed stubbornly high.

Analysts anticipate a monthly PCE price increase of 0.4% and an annual rise of 2.5%, according to Trading Economics. That’s up from 0.3% and 2.4% in January, respectively. The more closely watched core PCE report, which strips out volatile food and energy prices, is anticipated to show a 0.3% monthly and a 2.8% annual rise, with monthly core down from 0.4% in January but annual core even with January’s increase.

One thing that might blunt the impact of PCE is Fed Chairman Jerome Powell’s hints in last week’s press conference that higher inflation early this year might have reflected seasonal adjustments. This could give bearish PCE news tomorrow a hall pass from investors because it may reflect those same seasonal issues Powell mentioned. However, if PCE surpasses expectations, it would likely put even more focus on March CPI due in mid-April.

Sentiment check: Later this morning, investors get a look at the University of Michigan’s final Index of Consumer Sentiment for March. The headline reading is expected to be unchanged at 76.5, according to Briefing.com. That’s slightly below the final February figure of 76.9 and remains on the weak side, historically. Sentiment data follows a softer-than-expected March Consumer Confidence report from the Conference Board earlier this week.

As always, monitor the sentiment report’s data on inflation expectations, which Powell says he wants to keep “anchored.” The preliminary figures for March were 3% for one-year inflation expectations and 2.9% for five-year expectations.

Pending Home Sales for February is the final important report on tap later this morning, with analysts expecting a 2.1% monthly rise, according to Briefing.com.

Powell time: The Fed chairman speaks in a moderated discussion at 11:30 a.m. Friday at the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference. Put it on your list of things to watch along with the PCE report when the markets are closed tomorrow.

Factory whistle: Keep an eye on data from China this weekend. Analysts expect both the government and a private data measure to show manufacturing there close to the line between expansion and contraction as of March. For more on the current state of China’s economy and how its stock market might behave, read the latest commentary from Jeffrey Kleintop, chief global investment strategist at Schwab.

Yen in focus: Before the data from China, Japan unleashes a host of key numbers tonight, U.S. time, including retail sales, industrial production, inflation, and more. This comes after the yen hit its lowest level versus the dollar since 1990 earlier this week on concerns the Bank of Japan (BoJ) might continue to keep rates accommodative. It recently raised rates for the first time in 17 years, but Japan’s rates remain barely above water at 0% to 0.1% and the central bank didn’t indicate plans to raise rates further. That compares to 5.25% to 5.5% in the United States.

Stocks in spotlight

Pharmacy chain Walgreens Boots Alliance (WBA) reported earnings this morning and shares promptly fell around 2% despite the company beating analysts’ estimates for both top- and bottom-line results. Walgreens narrowed its fiscal 2024 earnings per share guidance to $3.20 to $3.35, from $3.20 to $3.50, which might explain why shares are down. Drilling into the quarter, the important retail pharmacy category saw a 4.7% year-over-year sales increase, and overall pharmacy sales rose 8.2%. Retail sales fell 4.5% annually, reflecting what the company called a “challenging” retail environment and a weaker season for colds and flus.

Walgreens and competitors have been under pressure from falling pharmacy reimbursement rates and competition from online retailers. Walgreens shares are down sharply year to date.

Stocks on the move:

  • Estee Lauder (EL) rose 4% in premarket trading after the company announced a partnership with Amazon (AMZN) to launch a U.S. Amazon Premium Beauty store for Clinique, Barron’s reported. Other Estee Lauder brands will have their own stores in coming months.
  • RH (RH) shares rose 9% in overnight trading despite earnings that missed analysts’ expectations. Upbeat guidance from the luxury retailer may be driving those early market gains. “While we expect business conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout fiscal 2024,” the company said in its press release. It expects fiscal 2025 revenue to rise 8% to 10%, above the FactSet consensus.

Wednesday in review:

Bond yields fell for the sixth time in seven trading days Wednesday, giving the entire market a late-day lift but especially helping rate-sensitive sectors like utilities and real estate. The TNX fell four basis points to less than 4.2% Wednesday and is now well below levels seen in mid-March when it approached 2024 highs near 4.35%. Industrial and materials stocks had strong days Wednesday, and small caps far outpaced their larger brethren, with the Russell 2000® (RUT) rising more than 2% versus just 0.86% for the SPX.

Eye on the Fed

Early today, futures traders saw 96% odds the Federal Open Market Committee (FOMC) will keep rates unchanged following its April 30 to May 1 meeting, based on the CME FedWatch Tool. Chances of a quarter-point rate cut following the FOMC meeting in June are seen at around 64%, down from 70% yesterday.

CHART OF THE DAY:  BUCK STOPS HERE. Though the Japanese yen recently hit its lowest level versus the dollar since 1990, the dollar index ($DXY-candlesticks) has only risen slightly over the last month and remains below its 2024 highs. It’s been trading in a relatively tight range all year between 102 and 105 and the chart pattern looks subdued after the breakout from under 100 to above 107 late last year. Data source: ICE.Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest 

It’s show time! If this week on Wall Street were a Broadway show, the audience would wonder why the final act is scheduled after the curtain closes and everyone goes home. Unusually, the touchstone data point hits the tape Friday when the market is shut for Good Friday observance. February PCE prices will play to an empty house. And that means completely empty, because even CME futures trading is closed Friday, along with Cboe® Treasury market trading. That contrasts with last year’s Good Friday when the federal government—which doesn’t close for this holiday—released the monthly Nonfarm Payrolls report when regular trading was shut. In that case, investors had a chance to react in the futures market, which stayed open that day.

Delayed reaction: It’s hard to say exactly how not being able to immediately trade the PCE data might affect market action. The best idea may be to watch news coverage of the report on Friday, check analysts’ analyses, and then closely follow futures trading once it begins Sunday night. Potentially higher-than-normal volume and volatility that night could trickle over into the following morning.

Next steps: Today wraps up the quarter and marks the fifth straight month of gains for the major indexes, barring any last-minute disasters. According to data from Bloomberg, major indexes often continue to rally after a five-month positive stretch, historically. However, if each of those months saw 1% or better gains for the SPX, the rally only continued 25% of the time in the months that followed. It suggests that very strong rallies, like the one we’re in where the SPX climbed 1% or more the last five months, are often front-end loaded and trickle away over time. Naturally, past performance doesn’t tell you what will happen in the future.


March 29: U.S. markets closed for Good Friday.

April 1: Construction Spending, Institute for Supply Management Manufacturing PMI®

April 2: February factory orders.

April 3: ADP® Employment Report

April 4: Expected earnings from Conagra (CAG).


Key Takeaways

  • Q4 GDP gets an upward revision to 3.4%, though pricing component stays tame

  • Fed’s Waller expresses hesitation on rate cuts ahead of tomorrow’s inflation data

  • Markets closed Friday despite PCE inflation release, leaving reaction to Sunday night

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