The Fed’s favorite inflation report is out. Here’s what I learned…

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The Fed’s favorite inflation report is out. Here’s what I learned…

Yesterday, we took a fresh look at the Federal Reserve’s latest preferred inflation gauge for August…

Yesterday, we took a fresh look at the latest reading of the Personal Consumer Expenditure (PCE) price index for August.

Now, this follows the Federal Reserve’s “pivot” on September 18 – where it announced a “jumbo” cut in its key interest rate of 0.5%. This was the central bank’s first rate cut since March 2020.

And after a flurry of economic data this week, the question on many investors’ minds was…

1) Did the Fed cut rates on time and 2) is another “jumbo” rate cut necessary at its next meeting in November?

The good news is that the numbers have continued to decline, showing that inflation is continuing to cool. So, in today’s 360 Squarewe’ll take a look at what the report says and what it means for the rest of the year. I’ll also tell you how to prepare for the upcoming earnings season and give you a preview of the latest Growing Investor Monthly issue. Let’s dive into…

Understanding PCE numbers

Now, before I go any further, I want to remind you that this report matters because PCE is the Fed’s favorite gauge of inflation. Specifically, Fed Chairman Jerome Powell has made it clear that he and other Fed members are paying close attention to core PCE, which strips out food and energy. He specifically mentioned that they want that number to be 2% annually.

Now digging into the details of the PCE report…

Overall PCE rose 0.1% in August and 2.2% over the past 12 months. This is the slowest annual increase since February 2021. Economists had expected overall PCE of 0.1% month-on-month and an annual pace of 2.3%.

Core PCE, which excludes food and energy, rose 0.1 percent in August and beat economists’ expectations for a 0.2 percent increase. Over the past 12 months, core PCE rose 2.7% over the past 12 months – which was in line with what economists had expected.

Overall, we should be pleased with the latest inflation data. People are starting to realize what I’ve been saying for a while, which is that inflation has been well within the Fed’s annual target for a while, so a cut in the key interest rate was warranted.

Too little, too late?

Now, it will be interesting to see how the Fed responds at its next meeting on November 7. For now, however, the consensus is that there will be a 0.25% rate cut at the Federal Open Market Committee (FOMC) meetings in November and December. , respectively.

But some people are beginning to speculate whether the Fed may have acted too late.

The reality is that the Fed acted because the employment situation deteriorated. The unemployment rate has risen to 4.2%, which isn’t terrible, but we don’t want to see it rise too much.

Furthermore, we learned this week that the Conference Board’s consumer confidence index fell to 98.7 in September from 105.6 in August. This was the biggest drop in three years, so consumers are clearly feeling the pinch.

The bottom line is that if the economic data turns weaker, you can expect to hear talk of another “jumbo” rate cut of 0.5% getting stronger.

That said, however, the latest GDP report showed that the US economy has not yet fully hit the brakes. The US economy grew at an annualized rate of 3% in the second quarter. That was better than economists’ estimates for GDP growth of 2.9 percent and up from GDP growth of 1.4 percent in the first quarter.

So solid GDP growth, along with cooling inflation, gives the Fed a bit more room to work at future policy meetings. And whether the Fed opts for another big rate cut or takes it slow with smaller rate cuts, Wall Street remains pleased that most of the uncertainty surrounding the Fed has finally dissipated.

And that means the stock market should continue to move higher in the coming weeks and months.

Ending the year strong

Now, the market has had an incredibly strong year so far. The S&P 500 gained about 20%, while the Dow rose 12.3% and the NASDAQ climbed nearly 21%.

Meanwhile, at class Growing InvestorMy shopping list has grown over 28% to date!

The reality is that institutional buying pressure has remained strong fundamentally superior stocks. And that’s why I expect me Growing Investor stocks will continue to lead the charge higher as they prepare for the third-quarter earnings season, which will begin in mid-October.

My Growing Investor stocks remain characterized by an average annual sales growth of 23.9% and an average annual earnings growth of 469.7%. Last quarter, my average Growing Investor shares posted a 27.8% earnings surprise. Given that our stock has benefited from positive analyst reviews over the past three months, I expect another wave of strong earnings surprises.

So, to make sure my subscribers stay “locked and loaded” for the upcoming quarterly earnings season and the fourth quarter in general, I’ve added a stock to the High Growth Investment Buy List and a stock to the Buy List of elite dividend payers from the last issue of Growing Investor yesterday.

Our first pick has a history of posting big earnings surprises. In fact, the company has delivered an average earnings surprise of 78.7% over the past four quarters, posting earnings surprises of 100%, 100%, 100% and 14.8%, respectively. And with analysts raising earnings estimates by 50% in the past month alone, the company is likely gearing up for another big quarterly earnings surprise.

Our other addition earns a coveted AAA rating. In other words, it gets an A in Stock Grader and Dividend Grader, as well as an A Quantitative Grade. So it’s backed by superior fundamentals, a history of rewarding shareholders and persistent buying pressure.

You still have time to learn more about these two choices in the latest issue of Growing Investor. Considering that I’m waiting fundamentally superior growth stocks to continue leading the market higher, I expect these new picks – and the rest of the stocks on our Buy List – to end the year on a strong note!

To find out how to get full access to my new Growing Investor Monthly issue, click here.

(Already a Growing Investor subscriber? Click here to login to the members-only website now.)

Sincerely,