Stocks Closed Lower Yesterday, All Eyes On This Morning's PCE Inflation Report Stocks closed lower yesterday, erasing mid-morning intraday gains. But the major indexes spent most the day in the red, and finished that way. Continued worries over tariffs as April 2nd approaches have weighed on prices. The mixed messaging hasn't helped. President Trump has delayed the implementation of tariffs several times. And he has softened his tone a few times. Notably a couple of days ago when he said that tariffs due in April would "probably be more lenient than reciprocal." And yesterday when he suggested that he might reduce tariffs on China if they can help approve a sale of TikTok. The softer tone also includes previous comments from U.S. Treasury Secretary Scott Bessent when he said, "I am optimistic that on April 2, some of the tariffs may not go on because a deal is pre-negotiated, or once countries receive their reciprocal tariff number, right after that, they will come to us and want to negotiate it down." But then there are comments that seem to ratchet up tensions, like earlier this week when the President said he is ready to levy a 25% tariff on imports from any country that purchases oil or gasoline from Venezuela. And Wednesday's announcement of a 25% tariff on imported autos. The market is trying to make sense of it. We should know more when April 2nd rolls around (or mid-April, or late April, or some other day). In the meantime, it's important to know that imports make up only about 15% of U.S. GDP. Moreover, it's highly unlikely that there will be a commensurate decrease in spending in relation to the tariffs. It's also unlikely that all of the tariffs will result in pass-through price increases. Additionally, there's also the substitution effect of people simply switching to domestic products. So many unknowns. But the feared negative impacts are likely to be far less than some of the hysterics surrounding it now. In other news, yesterday's third and final estimate of Q4'24 GDP came in at 2.4%, in line with views and up from last month's 2nd estimate of 2.3%. We also learned from the Corporate Profits report that Q4 after-tax profits rose 12.1% y/y vs. the previous 9.2% pace. With inventory and consumption adjustments, it was up 5.9%, in line with the previous pace of 5.9%. Today we'll get the Consumer Sentiment report. But the main event will be the Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge). The last several inflation reports (CPI – retail inflation, PPI – wholesale inflation, and the previous PCE report) all showed progress on inflation resuming, with the core rate (ex-food & energy) dropping two-tenths of a percent on each of them. Although, today's look at the PCE index is not expected to see another downtick. The headline rate is expected to stay flat at 2.5% y/y, while the core rate is expected to tick up to 2.7% vs. last month's 2.6%. A horizontal move to slight uptick should not cause too much concern. But a hotter than expected number would only feed into heightened anxieties about the economy. Either way, all eyes will be on this morning's PCE index. That comes out at 8:30 AM ET. With one more day to go, all of the major indexes are on pace to close up for the week. And if all goes well, that would make it the second up week in a row. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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