- Thursday was initially fairly calm day as we awaited the PCE numbers, leading into the New York session.
- Having said that, the possibility of significant market noise exists, which makes sense given that the PCE data is a major source of information used by the Federal Reserve to determine inflationary expectations.
- The question of whether and how many times the Federal Reserve will cut this year is the center of attention for everyone on the planet.
Additionally, the Federal Funds futures rate now indicates that three quarter point cuts are likely. Naturally, the question is not so much if that occurs as it is when it becomes relevant. Ultimately, the Federal Reserve must exercise extreme caution in this situation since making too many cuts too soon could hurt the economy. Furthermore, the Federal Reserve has a lengthy history of making too-late cuts and then acting excessively aggressively in an attempt to create deflation.
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PCE Comes Out As Expected
The PCE numbers came out as anticipated, so with that being the case it’s given Wall Street a green light to start buying again, as they believe that the Federal Reserve will of course continue to loosen its monetary policy over the longer term. Whether or not that into being the case remains to be seen, but right now it certainly looks as if Wall Street’s ready to jump onto it.
The Federal Reserve will face difficulties as it tries to catch up with the economy if inflation starts to plummet off a cliff and the economy begins to slow down pretty sharply. The stock market will also suffer during this time. It's not that I'm advocating for it at this moment, but it is something you should definitely be aware of. Not much has changed in this case in terms of technical analysis.
The 50-day EMA, the 5,000 level, and the 4,800 level are the levels that we continue to watch as support. Remember that while the market currently appears to be highly optimistic, it doesn't necessarily need to reach its goal overnight. A small amount of perseverance will definitely go a long way. You should also make sure that you are not unduly exposed to this market because, following this significant run higher, there may be some unstable behavior.
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