Whenever the Federal Reserve issues a policy statement that hints at some form of interest rate cuts, market pundits reach for more. The media speculates that the Fed will cut rates sooner than implied. It also suggests the Fed will cut rates by three times in 2024.
The Fed neither hinted at a rate cut in July nor did it call for more than one rate cut this year.
Does the PCE price index change anything? In May, the personal consumption expenditure price index was flat month-over-month. This is the first time in six months that the index stabilized.
Bond markets reacted negatively to the data. The TLT ETF dropped by 1.86% last Friday, June 28. Debt markets expect the Fed would consider cutting rates in September. That would give the economy the summer to work through current tightening conditions.
Prices for gasoline and energy goods fell by 3.4%. Energy stocks reflected this decline, as Exxon (XOM) traded well off its $123.75 high. Energy investors may find a bargain in Devon Energy (DVN) or Occidental Petroleum (OXY).
Clothing and footwear prices also fell. Nike’s (NKE) weak outlook is a result of weakening demand. Investors should continue to avoid clothing companies. Exceptions include Abercrombie & Fitch (ANF) or Gap (GPS). They managed through the weak retail environment.
