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Stock market crash alert: mark your calendars for January 27


Source: shutterstock.com/Artit Wongpradu

Fears of an impending stock market crash are mounting ahead of Friday’s personal consumption expenditure report (PCE). In the middle of the earnings season, the January 27 inflation index could prove to be the biggest driver of the market. What do you need to know about this week’s PCE?

Well, the PCE has long been considered the Federal Reserve’s favorite inflation measure. So Friday’s data release will likely inform the Fed’s rate hike decision on Feb. 1. According to the report, the Fed may choose to make some surprising changes to its planned tightening schedule.

Indeed, the central bank is expected to go ahead with a quarter-point hike in the federal funds rate at its next meeting. Some analysts believe it could be the last rate hike for the foreseeable future in the face of falling prices and widespread recession projections. In this regard, the next PCE will provide much-needed insight into the Fed’s game plan for 2023.

If you recall, in mid-December the Fed released its updated economic projections for 2023. In the report, the central bank revealed that it now expects the core PCE (excluding food and energy ) ended the year at 3.5%, above its target. 2% rate.

What does Friday’s PCE report mean for the stock market?

PCE report revives concerns over stock market crash

Friday’s PCE could trigger notable changes in the stock market. Especially at the start of the year, economic developments will likely determine the stock market narrative going forward.

It’s not for nothing that for most of 2022, economic indicators have proven to be major catalysts for stock markets. So far, this has always been the case in the new year.

The PCE will come as a sort of reaffirmation of the consumer price index from December (CPI) report, which was released earlier in January. In the report, prices fell 0.1% month-on-month, representing an annual increase of 6.5%, including a 5.7% jump in underlying inflation. .

The relatively promising CPI sparked an optimistic reaction from stock markets. Most major indexes climbed just under 1% on the CPI release, including the Nasdaq Compoundwhich saw its first five-day rise since July on the back of inflation data.

Friday’s PCE will also serve to validate previous deflationary trends. Prices have recently seen a noticeable downtrend across most price indices, despite some resistance.

Fed Vice Chairman Lael Brainard said the following earlier this month:

“Core PCE inflation is running at an annualized pace of 3.1% on a 3-month basis, below its reading of 3.8% on a 6-month basis and 4.5% on a 12 month basis. […] In this regard, housing services inflation remains stubbornly high at 8.8% over 3 months, compared to 7.7% over 12 months. Housing services are making an annualized contribution to the base PCE that is more than double their pre-pandemic contribution. »

As of the date of publication, Shrey Dua does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

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