Right out of the gate in the overnight session, stocks were weaker and bonds were stronger in a risk-off move that has become all too familiar for financial markets recently. Over the weekend, a fresh round of tariff headlines added more economic uncertainty to the mix with Trump mentioning reciprocal tariffs with “all countries” and WSJ reporting that an across-the-board 20% tariff is being considered.  Stocks and bond yields are both rapidly re-approaching their lowest levels of this cycle.

If you’re just joining us, here’s a brief history of the last few decades as it concerns inflation and interest rates. Inflation was an overblown concern among market participants who were scarred by the early 80s. It consistently failed to matter or materialize until 1980s style hyperinflation came roaring back post-covid. Since then, inflation data is once again a top tier market mover and the PCE price index is the most important of the 3 main government price indices. But PCE is tricky for a few reasons. First off, the other two indices come out 2 weeks earlier and allow PCE to be more accurately predicted. Also tricky is a day like today where we have a PCE price index update as a part of the GDP report. This isn’t the PCE you’re looking for! It pertains to Q4, 2024. Tomorrow’s PCE release is for the month of February, and that’s the more timely/relevant installment of the data. Today’s just finalizes revisions to December’s PCE reading and thus finalizes the Q4 price index.
In other news of the same category (things we’re not looking for), today’s jobless claims data is also not the labor market weakness we’re looking for.  2025 continues looking like the past 4 non-lockdown-affected years. 

Bonds aren’t upset though.  There’s even been a modest rally after the glut of AM data, but we’re still slightly weaker vs yesterday.