Dow Jones rises, Nasdaq falls after the Fed’s key inflation gauge shows faltering progress

The latest reading of the Federal Reserve’s inflation gauge showed price increases in October were flat from the previous month, raising questions about whether progress toward the central bank’s 2% target has come to a standstill.

The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs and is closely watched by the central bank, rose 0.3% in October from the previous month, in line with Wall Street’s expectations for 0.3% and September’s numbers. .

Over the previous year, core prices rose 2.8%, in line with Wall Street expectations and above September’s 2.7%. On an annual basis, total PCE rose 2.3%, an improvement from 2.1% in September.

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Another Wall Street strategist sees a solid backdrop to the U.S. economy and a broader picture of corporate earnings, which will drive stocks higher in the coming year.

JPMorgan’s global equity strategy team led by Dubravko Lakos-Bujas expects the S&P 500 (^GSPC) to reach 6,500 by the end of 2025, as do Goldman Sachs and Morgan Stanley, which issued the same target. The target represents an increase of approximately 8% over current levels.

Lakos-Bujas wrote that continued “American exceptionalism,” continued earnings growth and Federal Reserve rate cuts will be a tailwind for stocks in the coming year. He argued that the US is likely to remain the “global growth engine with a business cycle of expansion, a healthy labor market, a broadening of AI-related capital spending and the prospect of a robust capital market and deal activity.”

He added: “Heightened geopolitical uncertainty and the evolving policy agenda add unusual complexity to the outlook, but the opportunities are likely to outweigh the risks. The benefits of deregulation and a more business-friendly environment are likely to be underestimated, along with the potential for unlocking productivity gains and capital deployment.”

U.S. stocks remained near record highs on Wednesday as investors waited for a reading from the Federal Reserve’s favorite inflation gauge that would provide clues about the path of interest rates.

After hitting record highs on Tuesday, the S&P 500 (^GSPC) fell about 0.2% at the open, while the Dow Jones Industrial Average (^DJI) rose 0.1%. The tech-heavy Nasdaq Composite (^IXIC) fell about 0.3%.

The October print of the Fed’s favorite inflation gauge, the Personal Consumption Expenditures Index, will be released Wednesday morning at 10 a.m. ET. The emphasis is on whether inflation has come to a standstill.

Economists expect the annual core PCE – which excludes food and energy – to reach 2.8% in October, up from 2.7% in September.

Weekly jobless claims rose less than expected last week, reaching a seven-month low, as the impact of labor strikes and severe weather continued to wane.

New data from the Department of Labor shows that 213,000 initial unemployment claims were filed in the week ending Nov. 23, down from 215,000 the week before and below the 215,000 economists had expected.

Meanwhile, continuing claims for unemployment benefits stood at 1.9 million, an increase of 9,000 from the previous week and the highest level since November 2021.

Elsewhere in economic data, the second estimate of third-quarter GDP remained unchanged, again showing the US economy growing at an annual rate of 2.8%.

Shares of automakers General Motors (GM) and Ford (F) fell on Tuesday after Trump’s tariff threats against China, Mexico and Canada.

GM lost 9%, while Ford fell 3%, as both companies have a strong presence in Mexico.

But car manufacturers are of course not the only companies hurt by tariffs.

Think computers and T-shirts!

This is what HP Inc. (HPQ) CEO Enrique Lores and Abercrombie & Fitch (ANF) CEO Fran Horowitz told me about the rate topic.

Enrique Lores

“Some of that [cost of potential tariffs] will have to go to consumers, given the total margin we have in the categories. But again, we have to wait and see what the final rates are before we can determine what the exact plan will be.”

Fran Horowitz

“If we really understand what is happening, we will have to make some adjustments, and we will adapt accordingly. It is exactly what we did in 2018 when we faced the same challenge. By 2024 we will not exceed 5% or 6 % of our U.S. revenues from China. We’re looking at it country by country, but the flexibility we’ve built into our supply chain will really help us get through this.”