How PCE Data Could Effect Trades This Week

Last week brought welcome news for the markets in the form of the high-stakes Fed meeting concluding with a result that was about as good as could have been hoped for. While their policy decision was largely a foregone conclusion, the FOMC delivered what investors hoped for in that their updated ‘dot plot’ and post meeting commentary still confirmed that the committee has three rate cuts penciled in for this year, staying consistent with previous predictions and messaging. This positive news was the catalyst which sprung the markets higher, leading each of the three major indices to make new all-time highs. The bullish thrust post-Fed meeting was broad-based as 9 of 11 S&P 500 sectors finished the week in the green in addition to 79% of S&P 500 stocks trading above their 200-Day MA and the NYSE Advance-Decline Index made a new high.

The significant market events that our team is keyed in on this week are headlined by the new PCE data for February that is expected on Friday. Now, the upcoming trading week will be shortened as the stock markets will be closed on Friday in observance of Good Friday. Given that what is most likely the most anticipated event of the week will occur once the market is closed for the week, it is possible to see some cautious positioning to close the week in the event of another hotter than expected inflation report. In addition to this, building off this past week’s strong housing market data, we will get the most recent report regarding New Home Sales in the U.S. Finally, there are a handful of companies reporting their Q4 earnings this week that are worth mentioning, including Cintas Corp., & Walgreens Boots Alliance, Inc.

Personal Consumption Expenditures Price Index (PCE) – Despite the market being closed on Friday morning, the new PCE & Core PCE data for the month of February will be released. The PCE price index data is gathered to track the costs that U.S. consumers are paying for goods and services and to document the change in these costs over time. Core PCE is a pared down measure that excludes more volatile categories like Food & Energy and this is the index the Fed watches the most closely.
- February’s YoY Core PCE number is expected to come in at 2.8%, which would be in line with January’s report of 2.8%. If Core PCE comes in cooler than January or in line with expectations, this will be a boon to the markets.

U.S. New Home Sales– Every month, the U.S. Census Bureau releases their New Home Sales report which measures how many new construction homes were sold in that month. This report is a crucial measure for the major U.S. Homebuilders and businesses that are adjacent to this industry.
- February’s New Home Sales report is expected to show that 675K new homes were sold during the month. This would be a slight increase from the previous month and an 8.0% increase YoY for the month of February.

Federal Reserve Watch

This past week’s Fed meeting met the moment for investors as it served toconfirm market assumptions as well as remove some uncertainty. As the market had been forecasting for quite some time, when the FOMC released their policy decision they had decided to leave the Fed Funds rate unchanged. Additionally, last week’s meeting included the updated ‘dot plot’ from the Fed, which features each member’s forecast of where the Fed Funds rate should be at a given point in the future. Some uncertainty had risen regarding the updated ‘dot plot’ with some investors thinking that on the back of a few recent hotter than expected inflation reports, the updated rate forecast from the FOMC may indicate the number of expected rates cuts for the year to diminish from three to two or possibly lower. However, once the ‘dot plot’ was released, investors’ uncertainty was assuaged as it indicated that the committee still intends to reduce rates three times this year.

Now that March’s meeting is behind us, the next time the FOMC will meet will be May 1^st. According to current Fed Funds’ predictions, the committee is forecast to leave rates unchanged at this meeting as well. If this is indeed their course of action, this would leave five meetings remaining this year to accomplish their three projected rates cuts.

Looking beyond the May FOMC meeting, Fed Funds Futures are now indicating that the first policy rate cut will likely not come until the June meeting. The CME’s FedWatch tool now projects a 71.2% probability that the FOMC will reduce rates at June’s meeting. This is a notable increase in the odds of a June cut as the probability is now 12.4% higher than it was just one week ago.

This Week’s Notable Earnings

This week will be a relatively quiet week on the earnings front, however, there are three notable companies reporting this week that we would like to highlight. Despite doing almost $9B in sales last year, the lesser-known, yet large-cap company, Cintas Corp. is set to report their earnings this week. Joining them, Paychex, Inc. will also post their Q4 earnings mid-week. Additionally, the final company that is reporting this week that we want to highlight is Walgreens Boots Alliance, Inc., as they will report their earnings towards the end of the week.

On Wednesday morning prior to the market open, Cintas Corp. will report their Q4 earnings. CTAS is an industrial company with a market cap of nearly $65B and their business specializes in developing and providing uniform services for various businesses. Should CTAS meet analysts’ expectations this year they will grow their FY earnings by 12.4%, slightly below their previous 5-year earnings growth rate of 14.6%.
- CTAS earnings are expected to come in at $3.58 EPS.

HR & payroll software provider Paychex, Inc. will post their latest quarterly earnings on Wednesday before the opening bell. If PAYX meets their earnings expectations this will mark 6.2% YoY growth in their quarterly earnings. PAYX has essentially traded sideways in a pretty choppy manner since making their all-time high in early 2022. Any upside surprise in earnings or strong guidance that growth is reaccelerating would be welcomed by PAYX investors.
- PAYX earnings are expected to come in at $1.37 EPS.

Walgreens Boots Alliance, Inc., the well-known pharmacy retailer, is scheduled to post their latest earnings on Thursday before the market opens. WBA is projected to post a YoY decline in quarterly earnings of 29.3%. WBA shares have been in a prolonged drawdown due to the precipitous decline in their earnings over the past few years.
- WBA earnings are expected to come in at $0.82 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,