Major U.S. Averages Extend 3-day Rally, Stubborn Core Inflation Highlights Policy Challenges

Barry Adams
28 Apr, 2023
New York City

Stocks advanced for the third day in a row after the latest economic data highlighted challenges faced by the Federal Reserve. 

A closely watched alternative measure of inflation, which generally understates inflation felt by urban residents, rose 4.6% on an annual basis and advanced 0.3% from the previous month in March. 

The headline inflation measure has been steadily declining for several months but the core rate of inflation has been stuck near 4.6%. 

The elevated level of inflation after several interest rate hikes shows how difficult it will be for the Fed to bring down inflation to its preferred level of 2%. 

Elevated inflation report came a day later when the data indicated a slight increase in GDP in the first quarter, showing the difficult task of keeping the economy humming while arresting inflationary forces.  

Market participants are anticipating the Federal Reserve to lift interest rate by 25 basis points after the policy meeting next week, but investors are anxiously awaiting the Fed's explanation of how long high interest rates  have to be kept to bring down inflation to the long term average of 2%.  

 

March Personal Spending Flat, PCE Inflation Eased

Personal income rose slightly in March and personal spending was unchanged, the Commerce Department report  showed Friday. 

Personal income increased 0.3% in March, matching the rate in February and personal spending was unchanged in the month after edging up a revised 0.1% in February. 

The report also included a measure of consumer price inflation, that generally understates urban inflation, but preferred by policymakers at the Federal Reserve. 

The personal consumption expenditure price index increased 0.1% from the previous month in March, easing from a 0.3% advance in February.

The PCE inflation was the smallest since July 2022 and core PCE, which excludes food and energy, rose 0.3% and matched the rate in the previous month. 

The annual rate of consumer price growth eased to 4.2% in March from a revised 5.1% in February and annual core PCE rate slowed to 4.6% from 4.7% respectively. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.2% to 4,146.46 and the Nasdaq Composite index was nearly unchanged at 12,147.72. 

For the week, the S&P 500 index is up 0.3% and the Nasdaq Composite is higher 0.9%. 

The yield on 2-year Treasury notes inched lower to 4.06%, 10-year Treasury notes rose to 3.45% and 30-year Treasury bonds held at 3.68%. 

Crude oil rose 46 cents to $75.23 a barrel and natural gas prices eased a fraction to $2.35 a thermal unit. 

 

U.S. Stock Movers 

Intel Corporation soared 6.9% to $31.91 after the advanced semiconductor chipmaker reported smaller-than-expected quarterly loss. 

Amazon.com, Inc declined 3.8% to $105.68 after the online retail platform operator reported weaker-than-expected revenue growth in its cloud services segment. 

Capital One Financial Corp declined 1.5% to $94.47 after the credit card company reported first quarter earnings that were sharply lower than analyst estimates. 

Exxon Mobil Corp rose 1.8% to $119.0 after the oil company reported record first quarter profit, driven by higher output. 

Chevron Corporation declined 1% to $165.43 after the oil company reported higher first quarter profit despite the decline in oil and natural gas prices.