The Dividend Cafe - The DC Today - Thursday, February 29, 2024

Episode Date: February 29, 2024

Today's Post - https://bahnsen.co/3uKcswq A positive day in markets this Leap Year Thursday centered around PCE data that was inline with estimates for the month of January with December being revised lower. Headline year over year PCE rose 2.4%, and removing food and energy, Core PCE increased 2.8% from a year earlier. The dichotomy for 2023 was between goods price deflation of -.5% and services price inflation of 3.9%. So where does this all leave us? T his was the last major inflation data point prior to the FOMC meeting on 3/20, so the Fed is leaving rates unchanged in March, most likely the same (as of now) in May, with about a 50/50 chance for a rate cut in June. The bond market, fed futures, and the Fed’s own dot plots are estimating 75 bps of rate cuts by the end of the year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Hello and welcome to DC Today here on Thursday. It's February 29th, which I don't get to say all that often. In fact, only about every four years. all that often. In fact, only about every four years. Wish everyone a happy leap year here. It's good to be with you all. We had a good day in markets. The markets were up. Dow was up about 47 points. Closed just off of the highs. So we built on some gains into the close, which is great. And as had been anticipated, we got our PCE data out today. We had the headline number up 0.3% for the month of January, which registered a 2.4% year-over-year number. That was down from 2.6% last month. So the year-over-year number continues to trend lower. On headline, which is really good, same thing with core. If you strip out food and energy, we were up 0.4% for the month of January, which is what most of the media headlines are capturing, that inflation has ticked up.

But it was widely expected that that was going to be the case. And then year over year, we still ticked down to 2.8% on core PCE versus a year ago. That's down from 2.9%. So both numbers were in line, almost exactly in line, frankly, and both showing continued progress towards 2%. Fed futures today were not very much changed. This is the last data point or the last major data point before we get our March 19th and 20th Fed meeting. So they're on hold in March. They're likely on hold in May, unless something dramatically changes, which is possible. And then we've got about a 50-50 for a cut in June. And that's where the bond market is now

priced in. It's where Fed Futures is. And I think that's fine given the data that we have. We still have more data to go. And so these things can change. For the year of 2023, what it's coming down to is this dichotomy between deflation and goods. Goods were down about 0.5% on the year for the calendar year, and services were up about 3.9%. And so that's the difference between those two things. And you get the numbers that we've got today. And again, the Fed is looking at PCE a little bit more than CPI because it registers what consumers are actually spending money on on a monthly basis. So it's capturing some changes in consumer spending and some habits and some trends more real time. And the analogy I gave in the Ask Brian was, you know, if the price

of pork increased substantially with inflation, you know, you could have consumers just change demand and instead consume more beef, maybe at a lower price. And so the actual rate of inflation on food may be different because of that trend change. And PCE tends to do a better job capturing that, whereas CPI is a bit more of a fixed basket. It does get updated, but not monthly like PCE. And so it's just a little difference between the two. The initial jobless claims on the day were 213. We were expecting 210. But again, I mean, anywhere in this sort of low 200s range is about where we've been for quite a while and is still indicative of a quite healthy labor market. And so these numbers are fine and in line. Consumer spending for the month was up 0.2%. Again, this is coming off of the good old holiday

spending time in December. So January was up a small amount. It was up 0.2%, which is the lowest in three months, but incomes actually rose 1%. And I believe that's a good thing, which is people made more money and spent maybe a little bit less of it, which is good. The savings rate in this country is only 3.8%. So I never really worry about consumers not spending money. They're going to. It's part of our culture, frankly. It's what drives the economy. But if the rate of expenditures is increasing a small amount less than the rate of income, I'll take it. And if that were only the case on the public level, right, in the government. So all that to say, a decent day in markets. Tomorrow we'll have Dividend Cafe, as we always

do. Tomorrow's Friday, we'll have it in your inbox in usual style, which is great. We've got some manufacturing data with ISM and PMI out tomorrow. But other than that, I will let you go for the evening. And I wish you all a very good night. And if you happen to be watching CNBC World tonight, I'll be on Street Science. You can catch me at 6 p.m. Pacific. With that, I'll let you go. Have a good night. Thank you for watching. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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