Wall Street: US stocks rally on dovish FOMC, eyes on pivotal core PCE inflation data

US equity markets locked in robust gains last week, aided by a dovish FOMC meeting. For the week, the Nasdaq finished 2.98% higher, the S&P 500 added 2.29%, and the Dow Jones added 761 points (+1.97%).

While there were concerns that after a run of firmer data, the Fed might signal it expected just two rate cuts in 2024, the Fed Chair noted that firmer inflationary data had not changed its overall trend lower and that the path of inflation towards its 2% target will be a “bumpy road”.

In theory, this reduces the importance of this week's Core PCE inflation data, which is the Fed's preferred measure of inflation. However, at the end of last week, there were signs of some disagreement within the Fed's ranks.

On Friday night, Atlanta Fed President Bostic said he now expects just one rate cut this year (from two previously) based on the US economy's resilience. This suggests there might be less tolerance for an upside surprise in this week's Core PCE inflation number.

What is expected from Core PCE inflation (Thursday, 21 March at 5am)

Both headline and core PCE price inflation has moved lower since September 2022. In January, headline inflation eased to 2.4% from 2.6%. Core inflation eased to 2.8% down from 2.9%. On a monthly basis, core PCE prices increased by 0.4%, accelerating from the 0.1% increase in December.

In February headline is expected to come in at 0.3% month-on-month, which would see the headline rate remain stable at 2.4%. The Core PCE price index is expected to rise by 0.3% MoM, to leave the annual core rate of inflation at 2.8%.

Annual core PCE inflation chart.

S&P 500 technical analysis

The signs of a "loss of momentum" noted in recent weeks were negated as the S&P 500 failed to provide any downside follow-through last week, before exploding to new highs.

Providing the S&P 500 cash, doesn’t see a sustained break of March’s low’s 5055/5040 area, expect dips to be well supported at 5180 and again at 5100 before a push towards 5350 in the coming weeks.

Aware that if the S&P 500 were to see a sustained break of support at 5055/5040, it would warn that a short-term high is likely in place and that a deeper pullback towards 4800 is underway.

S&P 500 daily chart

Nasdaq technical analysis

The signs of a "loss of momentum" noted in recent weeks were negated as the Nasdaq failed to provide any further downside follow-through last week before exploding to new highs.

Providing the Nasdaq cash doesn’t see a sustained break of March’s low’s 17,750/00 area, expect dips to be well supported at 18,200 and again at 18,000 before a push towards 18.750 in the coming weeks.

Aware that if the Nasdaq were to see a sustained break of support at 17,750/00, it would warn that a short-term high is likely in place and that a deeper pullback towards 17,000 is underway.

Nasdaq daily chart

• ^{Source: TradingView. The figures stated are as of 25 March 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}