Despite the current outlook, a major resilience play might be in the works for the US stock market in the mid to long term.
Inflationary fears are far from over in the US stock market following the release of the Federal Reserve’s preferred inflation gauge dubbed the Personal Consumption Expenditure Index (PCE). As reported by CNBC, the core PCE grew by 0.4% month on month in January and by 4.7% in the year-to-date period.
This data riled the market as experts fear that this data will give the Feds the leverage to go back on its hawkish monetary push moving forward. The Federal Reserve implemented a 25 basis point increment in interest rates earlier this month as it counted on the slowing inflation reading using the Consumer Price Index (CPI) gauge.
Following the latest release, top US stock market indices started experiencing significant selloffs to extend the losses accrued in the year-to-date period. The Dow Jones Industrial Average (INDEXDJX: .DJI) is down by 1.34% to 32,710.90. The broader S&P 500 Index (INDEXSP: .INX) also recorded a significant value slump, dropping by 1.65% to 3,946.28.
The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) was also featured in the selloffs with a loss of 2.08% to 11,349.84. This broad-based crash is a reflection of individual companies whose stock took a deeper plunge owing to a number of other negative fundamentals.
For instance, American multinational airplane manufacturer Boeing Co (NYSE: BA) saw a 4.16% selloff in its stock to trade at $199.53 per share. Other top tech giants including retail giant Amazon.com Inc (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT) also slid by more than 2% each.
Wall Street firms had been optimistic a new positive growth will be charted this year with favorable interest rates. Banks recorded impressive revenue and this likely return to rate hike may lend a high degree of uncertainty for favorable revenue guidance shared thus far.
US Stock Market and the Resilience Play
Despite the current outlook, a major resilience play might be in the works for the US stock market in the mid to long term.
“This market has been pretty jittery this week, so any disappointing data is going to have an outsized impact as we’re seeing in the early movements,” said B. Riley’s chief market strategist Art Hogan. “This may test its recent lows, but I don’t think it’s going to push us to new lows. I think it’s just more confirmation that the Fed is likely going to go to 5% and 5.25%, which is consensus.”
Hogan’s conviction is that this current PCE reading will not necessarily justify a swift return to higher rate hikes unless the upcoming PCI reading shows inflation is not slowing down as anticipated.
“I don’t think this is enough to say the rally of 2023 is over. I just don’t think that’s the case. I think a lot of this is baked into what our expectations are for monetary policy already,” he added.
next