VIDEO: We’re Not Taking the PCE Price Index Bait

In today’s Daily Rundown, Chris Versace explains why the market may be reacting too positively to Friday's January core PCE price index reading and why that, along with the market’s technical set up, means we are sitting on the sidelines ahead of next week’s February data deluge. 

Chris also shares one area of the market that we’re starting to do some work on, and it’s one that has gotten pretty banged up in recent weeks. 

Transcript

CHRIS VERSACE: Hey everyone, Chris Versace here. It is Friday, February 28. And despite today's bounce in elastic shares on the earlier pop this week that we benefited from with the rise in Axon shares, we are closing out what has been simply a challenging month for the market, and yes, for the portfolio.

As you're seeing today, though, the market is indeed trying to claw back some of yesterday's big sell off, one that especially hammered some tech stocks. Now, as we expected and discussed in yesterday's video, the market is reacting today to what it saw in the January PCE, Price Index Report. And you know, candidly, yes, as we discussed in our Alert that we broke the report down with you in, we shared that, yeah, the core figure did move lower, especially on a year-over-year basis.

But the reality is that what we're looking at is some headline relief in the market. And we say that because as we spelled out in the Alert, the PCE, Price Index Data, is simply not as simple as it seems. From lapping a high year-over-year core PCE figure in January 2024, to the fact that the data was simply collected before President Trump was sworn in, and we saw his big push on tariffs, it really smells to me like the market is overreacting to the data.

Remember, we have some preliminary February figures that show that the economy really slowed considerably on the service side and inflation expectations ticked higher.

So yeah, we will recognize what's going on underneath the headline figures. But more importantly, we're preparing for what is coming at us next week. We touched on that and also kind of called out to you the market's current technical setup in the Alert that we had mid-morning. Now, candidly, I would suggest that if you haven't read that Alert, particularly the first half, you should.

And I'm saying this because it shows multiple views as to why the market, despite the recent pain that we saw, isn't oversold. More importantly, it also shows how the 100-day moving average for the S&P 500 could be setting up as a level of resistance, just as we get all of next week's February facing data.

Now, you might say you guys are being overly cautious. And maybe we are. But here's the thing, if next week's data reaffirms the few bits of February data that we already received, it's going to raise more questions about the vector and the velocity of the economy, the impact of tariffs, inflation.

Next week also brings what's likely to be a lot more headlines, fresh ones, about tariffs. Remember, next week we see Trump's tariffs on Mexico and Canada go into effect. And we're likely to hear a little bit more about that.

We also have retailers reporting next week. And they will not only share their latest quarterly results, but their outlook is likely to touch on the impact of tariffs. And I'm calling out specifically the ones with China and their reciprocal tariffs. Yesterday, Trump talked about raising tariffs on China again. And China responded saying, we will have reciprocal tariffs as well.

So this is starting to heat up a little bit, and I'm very interested in hearing what those retailers have to say about that. So I have to be candid, it's just hard right now to see sufficient good news coming in the next few days that could lead to a sustainable rebound in the market. And that is why, even though several positions in the portfolio are at or near pickup points, or they're approaching oversold levels based on their relative strength index, their RSIs, we're opting to hold off making any moves with the portfolio as we close out this week, and most likely as we start next week.

Now, if the market, meaning the S&P 500 becomes oversold, or if tariff-related developments next week turn out to be very different than what they seem to be, that could lead us to take some action. Now, I'll also share that we haven't just been sitting on our hands. Obviously, we've had a bunch of earnings notes to get out, and we, of course, added Axon shares to the portfolio earlier. But I will share this.

We are taking a look at some government contractor names. They have gotten to, say, beaten up would be a little bit of an understatement. You know, take a look at the charts Palantir, Booz Allen, and these others. They've gotten hammered. Now, we're starting to do our work on them. That doesn't mean they will make it to the bullpen. That doesn't mean they'll make it to the portfolio.

But I will share that as we formulate more concrete thoughts and opinions, we will share them with you. You have my guarantee on that. So stay tuned. And as I always like to say, be sure to read your emails and your Alerts. You want to make sure you're getting all our thoughts. And remember, too, that today we have the February monthly roundup coming at you after the market close.

You're going to want to read it. I promise you that. With that said, that is today's video. Thank you for watching. Enjoy the weekend. I know I will. And we will be back here on Monday to kick off March and tackle all that data that's coming at us, sharing our thoughts with you along the way.