Yesterday, we got a fresh look at the latest Personal Consumption Expenditures (PCE) price index reading for August.

This update follows the Federal Reserve’s significant interest rate cut of 0.5% on September 18. This marked the first rate cut since March 2020.

Amidst various economic reports this week, investors are asking two key questions:

1) Did the Fed cut rates at the right time? 2) Is another sizable rate cut necessary in their next meeting in November?

On a positive note, inflation figures continue to decline. Today, in Market 360, we’ll delve into the report’s insights, its implications for the remainder of the year, and prepare for the upcoming earnings season. Additionally, I’ll provide a preview of the latest issue of Growth Investor. Let’s explore the details.

Understanding PCE Figures

First, it’s important to note why the PCE report is crucial: it is the Federal Reserve’s preferred measure of inflation. Fed Chair Jerome Powell and other officials focus closely on the core PCE, which excludes food and energy prices, aiming for a 2% annual increase.

Looking at the latest PCE data, the headline PCE rose by 0.1% in August and 2.2% over the past year, marking the lowest annual increase since February 2021. Economists had predicted a 0.1% increase month-to-month and a 2.3% annual pace.

Meanwhile, core PCE, which omits volatile food and energy prices, also rose by 0.1% in August, surpassing economists’ expectations for a 0.2% increase. Over the past year, core PCE increased by 2.7%, aligning with predictions.

This latest inflation data should bring some optimism. It supports the view that inflation has been under control within the Fed’s target, justifying the recent interest rate cut.

Did the Fed Wait Too Long?

The next Federal Reserve meeting on November 7 will be closely watched. Currently, many anticipate a 0.25% rate cut in both November and December.

However, there are concerns about whether the Fed acted too late.

The situation is pressing as the unemployment rate has risen to 4.2%. This figure isn’t alarming, but further increases could raise concerns. Additionally, The Conference Board’s Consumer Confidence index fell to 98.7 in September from 105.6 in August, marking the largest drop in three years and indicating consumer unease.

If economic data continues to deteriorate, discussions surrounding a larger rate cut of 0.5% may intensify.

However, recent GDP results show that the U.S. economy is still growing, with a 3% annualized growth rate in the second quarter. This exceeded economists’ estimates of 2.9% and is an improvement from 1.4% growth in the first quarter.

The combined effect of solid GDP growth and decreasing inflation provides the Fed with some flexibility during future policy meetings. Regardless of whether they pursue another major rate cut or smaller adjustments, the market appears relieved that uncertainty regarding the Fed’s actions has lessened. This is likely to support continuing upward trends in the stock market in the upcoming months.

Closing Out the Year on a High Note

So far, 2023 has been a remarkable year for the market. The S&P 500 has increased by roughly 20%, while the Dow has risen by 12.3%, and the NASDAQ has gained nearly 21%.

In the realm of Growth Investor, my curated Buy List has surged over 28% year-to-date!

Strong institutional investment has propelled fundamentally superior stocks, which bolsters my expectation that Growth Investor selections will lead as we approach the third-quarter earnings season, starting mid-October.

My Growth Investor selections showcase impressive metrics, such as an average annual sales growth of 23.9% and average annual earnings growth of 469.7%. Last quarter alone, my average selection demonstrated a 27.8% earnings surprise, supported by positive analyst forecast revisions over the last three months.

To keep my subscribers ready for the upcoming quarterly earnings and the final quarter of the year, I have included one stock in the High-Growth Investments Buy List and another in the Elite Dividend Payers Buy List in the recent Growth Investor issue.

One of my picks has maintained an impressive history of earnings surprises, averaging 78.7% over the past four quarters. With analysts recently increasing their earnings expectations by 50%, this stock is likely preparing for another significant quarterly surprise.

The second stock holds a highly sought-after AAA rating, reflecting its solid performance as validated by Stock Grader and Dividend Grader ratings. This stock has a track record of returning value to its shareholders and is currently experiencing healthy buying interest.

There’s still time to discover these two new selections in the latest issue of Growth Investor. With the expectation that superior growth stocks will continue to thrive, I anticipate these new additions—and our entire Buy List—will help close out the year strongly!

For full details on my new Growth Investor Monthly Issue, click here.

(Already a subscriber? Click here to access the members-only website now.)

Sincerely,

Louis Navellier

Editor, Market 360