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S&P 500 FUTURES REMAIN PLANTED AFTER PCE

The main U.S. equity index futures are higher on the day in the wake of the release of the latest Personal Consumption Expenditures (PCE) report.

E-mini S&P 500 futures EScv1 are up around 0.45% which is roughly unchanged from where they were just before the numbers were released. The futures were already trading up, boosted by a premarket rise in Apple AAPL.O shares after company executives on Thursday forecast relatively strong sales growth.

The December headline PCE numbers on a month-over-month and a year-over-year basis were in-line with the estimates. The core PCE index on a month-over-month basis and on a year-over-year basis were also both as expected.

December personal income month-over-month was flat with the estimate. December adjusted consumption was above the Reuters Poll.

Employment costs for Q4 came in as expected:

According to the CME's FedWatch Tool, the probability that the Fed leaves rates unchanged at its March 18-19 meeting has edged up to around 84% vs 82% just prior to the release of the economic data. The chance that the FOMC cuts rates by 25 basis points is now 16% vs 18% before the numbers.

Looking further out into 2025, the FedWatch Tool is still showing a slight bias for rates to be in the 4.00%-4.25% area vs the current target rate of 4.25%-4.50% in June. Conviction in that outcome has increased ever so slightly from Thursday's read. There is also a very slight tilt for another 25 basis point cut in December.

The U.S. 10-Year Treasury Yield US10YT=RR is now around 4.52%. It was around 4.53% just before the numbers came out. The yield ended Thursday at 4.512%.

A majority of S&P 500 sector SPDR ETFs are higher in premarket trade with tech XLK.P, up around 1%, posting the biggest rise. Staples XLP.P, off around 0.3%, are taking the biggest hit.

The SPDR S&P regional banking ETF KRE.P is up around 0.4%.

Regarding the data, Clark Bellin, president and chief investment officer at Bellwether Wealth, based in Lincoln, Nebraska, said:

"Inflation is still firmly above the Federal Reserve's 2% target. While Friday's PCE print was in-line with expectations, the data shows that inflation remained elevated in December to end 2024, making it somewhat ironic that the Federal Reserve cut interest rates during the same month."

Bellin added "With still stubborn inflation and a very strong economy and labor market, as the Federal Reserve suggested on Wednesday, more time is needed to allow inflation to settle down before the Fed can cut rates again."

As for the stock market, Bellin says that even with this week's volatility, stocks appear on track to post January gains, which is a promising signal for how the market may perform throughout 2025, since historically, a strong January points to a positive full year for stocks.

Although he thinks valuations remain elevated, he believes "it's important to remain invested. New money can be added strategically, and on pullbacks."

January Chicago PMI is due at 0945 ET. The estimate is 40.0 vs last month's read of 36.9.

Here is a premarket snapshot from just shortly before 0900 ET:

(Terence Gabriel, Chuck Mikolajczak)

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