Oct Core PCE +0.27% MoM is +0.23% ex-magazines. Affirms inflation "falling like a rock" and Fed stays dovish

Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish
Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish
Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish
Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish

Today’s Oct Core PCE came in at +0.27% MoM, slightly better than consensus of +0.28%. The YoY came in at +2.80% YoY. The details of the report show inflation is far weaker than Core PCE suggests:

  • the top 3 contributors to Core PCE rising in Oct:
    – Housing +0.07% contribution to growth
    – Financial services +0.05%
    – Magazines + Stationery +0.04%
  • Magazines? Why would paper products and magazines be the 3rd largest contributor to inflation. In fact, the monthly rise of +6.23% is 75% annualized. The subcategory “Newspapers and Periodicals” is rising even faster, at +9.00% MoM or 108% annualized.
  • Tireless Ken, our head of Data Science, contacted the BLS (Bureau of Labor Statistics) and the “BLS doesn’t seasonally adjust this series. probably because there isn’t any seasonality statistically”
  • Does this make sense that magazines should be adding +0.04% to Core PCE inflation in October. As the chart below shows, this is highest monthly jump EVER. EVER.
  • Ex-magazines, Core PCE rose +0.22% MoM, or 2.5% annualized. This is a very good pace and tracking towards the Fed’s 2% target.
  • Thus, we view this report as dovish.

Bottom line: Thanksgiving rally intact.

In our view, the Thanksgiving rally is intact. This inflation report is positive for equities. Beyond that, we see positive supports for equities into year-end. As we noted earlier this week:

  • the median gain post-election AND
  • given no recession AND markets declined
  • is 7%, implying S&P 500 6,300 or so

That said, we see more upside for other groups. This holds whether looking at 2016, or whether thinking of a dovish Fed. The drivers are:

  • de-regulation
  • drop in cost of capital for businesses
  • general “animal spirits” given Republican White House and Senate

This favors the following groups:

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Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish

Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish

Oct Core PCE +0.27% MoM is +0.23% ex-magazines.  Affirms inflation falling like a rock and Fed stays dovish

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