ETFs
Latest Inflation Report Pushed Markets to Record Highs in June: Could It Happen Again on Friday? 5 ETFs to Watch – SPDR Gold Trust (ARCA:GLD), iShares Russell 2000 ETF (ARCA:IWM)
The Federal Reserve’s closely watched inflation report – the Personal Consumption Expenditures Price Index – was released on May 31 for April data and sparked another market rally in June, pushing major indexes higher. their historical peaks.
As traders prepare for Friday’s May PCE price index report, scheduled for release at 8:30 a.m. ET, many are wondering whether more supportive inflation data could bring bulls back to Wall Street after a mixed few days. performance during the last sessions.
May PCE report: what are economists waiting for?
The PCE price index is expected to decline from 2.7% year-on-year in April to 2.6% in May, according to economists’ consensus data collected by Econoday.
On a monthly basis, the index is expected to increase at a rate of 0.1%, down from the previous 0.3%.
The core PCE price index is expected to fall 2.8% to 2.6% year-on-year in May, potentially reaching its lowest level since March 2021.
On a monthly basis, a slowdown of 0.2% to 0.1% is expected.
If PCE inflation falls as expected, or even further, this could strengthen investors’ expectations for rate cuts, potentially rekindling hopes for action as early as September, and would be welcomed by markets.
Traders assign a 65% chance of a Fed rate cut in September. In total, 50 basis points – the equivalent of two rate cuts – are planned until the end of the year.
Fed’s Favorite PCE Report Coming Friday: What Happened Last Time??
In April, the headline PCE inflation rate remained steady at 2.7% year-over-year. The core PCE price index also met expectations with a 2.8% increase year-over-year, although it was slightly below the monthly estimate (0.2% vs. 0.3%).
Data on personal spending and personal income came in slightly lower than expected, fueling expectations that the economy is slowing and inflationary pressures continue to ease.
This has fueled expectations of an increasing likelihood that the Fed will make two rate cuts by the end of the year.
Stocks reacted positively to the April PCE report. The S&P 500, as tracked by the SPDR S&P 500 SPY rose 0.9% on the day.
Notably, the data provided a key turning point for a bullish trend reversal in June, as shown in the chart below from Benzinga Pro.
Other key ETFs to watch on Friday
In addition to the broader stock market, traders will also be closely watching other key asset classes to gauge the overall market reaction to the PCE inflation report, including:
- The US Dollar Index: Followed by Invesco DB USD Index Bullish Fund ETF UUP. The dollar could weaken if inflation falls below consensus estimates, and strengthen if it exceeds expectations, in response to market expectations for interest rates.
- Long-term US Treasuries: Measured by the iShares ETF on 20-year and older Treasury bonds TLT. A lower-than-expected PCE ratio is likely to depress bond yields, which will increase the value of Treasury-linked ETFs, and vice versa.
- Gold Price: Monitored by the SPDR Gold Trust GLD. Gold generally moves inversely to the dollar and yields. A colder-than-expected PCE report could raise expectations of Fed rate cuts, boosting gold’s appeal.
- The Russell 2000 Index:Replied by the iShares Russell 2000 ETF IWM. Small caps, which have significantly underperformed the S&P 500 and Nasdaq 100 this year, could benefit from lower inflation rates as pressure from high interest rates, which affects them more than large-cap stocks, would decline.
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