An email from one of our readers began with the title “The PCE is quite confusing”. He asked if we could explain the difference between the monthly PCE price index and the PCE quarterly prices, that is to say the GDP deflator, accompanying the GDP report. Given the importance of the PCE monthly prices for the Fed and its meeting of tomorrow, it is worth responding publicly to the question.
last week, we learned that the quarterly PCE price deflator was up 3.7 % on an annualized basis. However, the PCE’s monthly prices remained stable. Although the two inflation measures share the same name, PCE (personal consumption expenditure), they measure different things.
The monthly PCE prices, the measurement of inflation favored by the Fed, follow the evolution of consumer goods and services prices. The quarterly PCE price indicator is an index designed to subtract the impact of inflation from the GDP figure in order to obtain real GDP. Consequently, the deflator uses a broader measurement of goods and services, including elements which are not directly linked to household expenditure.
In addition, quarterly data from the PCE index is more prone to important revisions than monthly data. Monthly reading is therefore more reliable. The graph below shows that the two inflation indicators follow each other on an annual basis.
However, there is currently a slight gap between the two. While the monthly PCE prices fell 0.04 % last month, they increased by 0.44 % and 0.30 % in the previous two months.
Thus, its annualized quarterly variation is approximately 3.1 %, which does not represent a divergence as important as the recent PCE data suggests.
To be monitored today
Income
The economy
Updating market transactions
Yesterday we noted that the recent technical configuration suggests a short -term correction after a strong recovery after the misfortunes of The “Liberation day”. Despite the short-term overhang conditions, the corrections will probably remain contained above recent levels of support for two reasons. first of all, as indicated on the page “X”, The buyout window d’ shares is reopened and the sharp increase in buyouts provided the support necessary for the recent recovery. These buyouts will continue until May.
Second, the width of the market has improved significantly. As the graph shows, the width of the market has improved significantly, the number of shares negotiating above their 50 and 200 DMA having increased sharply, and the advance-Decline line of the NYSE having tested its previous summits.
These data suggest that if corrections are likely, it should be well contained at the level of resistance previously, transforming them into support. The weekly sales signal in the lower panel is an element to watch closely. When it turns into a purchase signal, it will be time to bring exposure to actions to target weights. For the moment, although a recent lower correction is possible, it is more likely that any correction that brings the market to around 5500 or 5300 finds buyers ready to intervene.
That said, it is quite possible that during the summer, when the impact of customs duties will be fully recognized, that the economy slows down and that the profits will be revised downwards, the market is experiencing a new drive of volatility. As I noted in yesterday’s blog on “Resistance is useless:”
If you want my opinion, here it is:
- We have probably seen the lowest on the market for this year.
- It is likely that we have also seen the highest.
Navigate a market stuck between support and resistance becomes an emotional challenge. Investors are confronted on sudden covers towards resistance – and with retirements to the support – which use the feeling until errors occur.
Here is how we position ourselves in this current and uncertain market environment.
- Mainly a long position on actionsbecause the market structure remains upward.
- Increase in liquidity To manage uncertainties in terms of policy and growth.
- A short position on the index for Cover the risk of decline.
We also recommend a healthy portfolio and a risk management scheme.
- Tighten stop-loss levels on current support levels for each position.
- Cover portfolios against larger market drops.
- Take profits from the positions that have been very winning.
- Sell late positions and losing positions.
- Increase liquidity and rebalance the portfolios according to the desired weights.
The truth is that it is impossible to measure the risk in advance.
The sectors run down and to the right
In the first screenshot below, the graph located to the right of the absolute and relative sectoral analysis shows the evolution of each sectoral score in the last two weeks. It is interesting to note that the trajectories of many sectors have moved downwards and to the right. Consequently, absolute scores increase for those who evolve in this direction, while the relative scores generally decrease. In other words, most sectors see their technical characteristics improve but underperform the market.
The second graph shows that, despite the notable recovery in recent weeks, many absolute and relative scores remain close to fair value. As a rule, we expect the absolute scores to be higher. It is a sign that the market remains cautious. However, if the market continues to straighten, there remains a good margin of progression before the sectors and factors become over -going in an absolute or relative analysis.
The second graph shows that the ETF Momentum is very over -going compared to the S&P 500. The third graph details the positions of the ETF Momentum. As you can see, some of its main titles are relatively overcounted in absolute and relative terms.
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