New York Stock Market Mixed Ahead of October PCE Inflation Data Release... Strong Growth in Q3

Last Month's PCE Inflation Expected to Rise 2.3% YoY
US Q3 Growth Rate 2.8%...Strong Consumption Drives
Weekly New Unemployment Claims at 7-Month Low

The three major indices of the U.S. New York Stock Exchange showed mixed trends in early trading on the 27th (local time). The U.S. economy continued its robust growth in the high 2% range in the third quarter of this year, supported by strong consumer spending. Investors appeared to be watching the market cautiously as they awaited the release of the October Personal Consumption Expenditures (PCE) price index later that morning.

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As of 9:50 a.m. in the New York stock market, the Dow Jones Industrial Average, which focuses on blue-chip stocks, was up 0.2% from the previous trading day at 44,948.66. The S&P 500, which centers on large-cap stocks, was down 0.06% at 6,017.89, and the Nasdaq Composite, which is tech-heavy, was trading 0.31% lower at 19,115.22.

On the same day, the U.S. Department of Commerce released the revised GDP figures for the third quarter of this year. According to the Department, the preliminary real GDP for Q3 grew at an annualized rate of 2.8% compared to the previous quarter. Although this was slightly below the Q2 growth rate of 3.0%, it matched both the previously announced flash estimate and market expectations (both 2.8%). This marks the eighth quarter out of the last nine in which U.S. GDP growth exceeded 2%. Strong consumer spending was the main driver of U.S. economic growth. Consumer spending increased by 3.5% quarter-over-quarter in Q3, reaching the highest level so far this year.

The labor market also remained stable. According to the U.S. Department of Labor, new unemployment claims for the week of November 10?16 fell by 2,000 from the revised previous week to 213,000. This is the lowest level in seven months since April and 2,000 claims below experts’ expectations of 215,000. Continuing claims, which count those claiming unemployment benefits for at least two weeks, stood at 1,907,000 for the week of November 3?9. This was an increase of 9,000 from the revised previous week’s 1,898,000 but 12,000 below the market forecast of 1,910,000.

The market is awaiting the release of the October PCE inflation data at 10 a.m. Eastern Time. Last month’s PCE inflation is expected to have risen 2.3% year-over-year, slightly higher than September’s 2.1%. Since the PCE price index is the Federal Reserve’s most closely watched inflation gauge, a larger-than-expected jump could influence the Fed’s interest rate path next month.

In the minutes of the November Federal Open Market Committee (FOMC) meeting released the previous day, the Fed confirmed a cautious monetary easing stance. The minutes stated that "participants expected it would be appropriate to gradually move toward a more neutral policy stance." They also noted that if the decline in inflation slows, there might be a need to slow down or pause the pace of easing. This aligns with Fed Chair Jerome Powell’s remarks on November 14 that the Fed would not rush rate cuts.

Steven Stanley, Chief U.S. Economist at Santander US Capital Markets, said, "We expect the Fed to cut rates in December," adding, "(Current rates) are still quite far from neutral levels, so they will want to keep moving forward."

The market is pricing in a high probability that the Fed will implement a 'small cut' (a 0.25 percentage point rate cut) next month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflects a 66.3% chance of a 0.25 percentage point rate cut at the December FOMC meeting and a 33.7% chance of rates remaining unchanged. However, the market expects the pace of rate cuts to slow down starting next year.

U.S. Treasury yields are falling. The benchmark 10-year U.S. Treasury yield dropped 4 basis points (1 bp = 0.01 percentage point) from the previous trading day to 4.25%, while the 2-year Treasury yield, which is sensitive to monetary policy, fell 3 basis points to 4.21%.

By individual stocks, Dell Technologies and Hewlett-Packard (HP) fell 12.01% and 9.74%, respectively, following disappointing quarterly earnings reports. CrowdStrike also declined 4.36% after missing market expectations. Urban Outfitters surged 13.48% after reporting earnings that exceeded analyst forecasts. Shares of General Motors (GM) and Ford, which had fallen after U.S. President-elect Donald Trump announced a 25% tariff on Mexico, rose 1.59% and 0.68%, respectively. Both companies have production bases in Mexico, so they are expected to be impacted if the tariffs are implemented.

International oil prices are rising. West Texas Intermediate (WTI) crude oil increased $0.46 (0.67%) to $69.23 per barrel, and Brent crude, the global benchmark, rose $0.32 (0.44%) to $72.64 per barrel. The day before, Israel and the Lebanese militant group Hezbollah agreed to a ceasefire.