28 Sep Lock while at the top of the trading channel
The big news of the morning was the release of the Personal Expenditures Consumption (PCE) report for the month of August and it shows that inflation is still well below where the Fed was hoping it would be. Core PCE (which is PCE less food and energy) was up just 0.1% in the month of August and 1.3% year over year. This helps the Fed support their reasoning for not yet making a move to raise interest rates. Although the Headline PCE is about 0.5% higher, the Fed is ignoring this figure because they feel the significant drop in oil prices needs to be strongly considered when factoring the cost of living. This is providing an artificial cover for the Fed to delay making a move. However, it may not be the most accurate reflection on inflation in the near future.
In other news, it was reported that Personal Income grew by 4.4% in the private sector and even more among highly skilled workers. This is significantly higher than the median income growth of 2.2% that the Fed points to could be a sign of pending consumer inflation. Either way, the data seems to certainly support a Fed Funds rate hike. Many speculate that the Fed is more concerned about the performance of the stock market and could perhaps fear that a Fed rate hike could be blamed for a more significant drop in the market. Many smart investors have been warning about risks associated with the stock market at this time. There is a great deal of talk about overvaluation and the likelihood of a “Fed Induced” market crash. Time will tell, but it is certainly worth considering the opinions of those who trade large sums of money.
Bonds continue to trade within the tight channel that has capped bonds for months. Unless an event significant enough to push bonds above their 200 day moving average occurs, the safe play will be to lock while at the top of the trading channel. With speculation waning that last night’s blood moon is a sign of the “beginning of the end” for mankind, it looks like it just may be another normal day for the markets.