The market has issues, including the PCE data

Briefing.com Summary:

*PCE inflation data was in line with estimates and in line with a sticky disposition.

*Caterpillar (CAT) warned of higher tariff costs weighing on its full-year adjusted operating margin.

*A hearing is being held today on whether President Trump can fire Fed Governor Cook.

The S&P 500 closed above 6,500 for the first time yesterday, with mega-cap stocks leading the advance following the earnings report from NVIDIA (NVDA), which itself finished the day lower. The follow-through this morning, however, has been lacking, with tariff issues, Fed governance issues, earnings issues, and economic issues in the mix.

Currently, the S&P 500 futures are down 16 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 108 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 87 points and are trading 0.2% below fair value.

The disposition of the futures market implies that it will be a lower start for the major indices, but of course such indications haven’t stopped this bull market, which has thrived on buy-the-dip opportunities. An expectation that the Fed will soon be cutting rates has underpinned that confident approach of late.

We’ll see if that is the modus operandi again today, notwithstanding a number of moving parts that would, fairly, give buyers some pause.

• The market will be closed Monday for Labor Day, so there could be some position squaring in front of the long weekend following another very good month for the market.
• Dow component Caterpillar (CAT) is warning of a higher-than-expected full-year cost from tariffs that is prompting it to forecast its adjusted operating margin coming in at the low end of its target margin range.
• There is ample drama surrounding Fed Governor Cook’s situation. A hearing on whether the president can fire her is being held at 10:00 a.m. ET today.
• NVIDIA (NVDA), and most of its Magnificent 7 friends, is trading lower.
• This morning’s economic data showed a widening in the goods deficit in July to $103.6 billion from $84.9 billion in June and PCE inflation sticking above the Fed’s 2% target.

Some offsetting developments include healthy responses in the likes of Affirm (AFRM), Elastic (ESTC), Autodesk (ADSK), Ambarella (AMBA), and Ulta Beauty (ULTA) following their earnings reports, and a declaration from Fed Governor Waller (FOMC voter) that he supports a 25 basis point cut at the September 16-17 FOMC meeting and sees scope for additional cuts over the next three to six months with the current target range (4.25-4.50%) being 125 to 150 basis points above neutral.

We’ll know in several weeks if the majority of voting FOMC members feel the same. Today’s release of the July Personal Income and Spending Report will be factored into their thinking.

Briefly, personal income, bolstered by a 0.6% increase in wages and salaries, increased 0.4% month-over-month in July (Briefing.com consensus: 0.4%) following a 0.3% increase in June, personal spending increased 0.5% month-over-month (Briefing.com consensus: 0.5%) following an upwardly revised 0.4% increase (from 0.3%) in June, the PCE Price Index increased 0.2% month-over-month (Briefing.com consensus: 0.2%) following a 0.2% increase in June, and core PCE inflation, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) following a 0.3% increase in June.

On a year-over-year basis, PCE inflation was up 2.6%, versus 2.6% in June, while core PCE inflation was up 2.9%, versus 2.8% in June. The Fed’s inflation target is 2.0%.

The key takeaway from the report is that it was largely in line with expectations, so the market is apt to stick to its thinking that there will be a rate cut in September even though PCE inflation remains stuck above the Fed’s 2.0% target.

In fact, the fed funds futures market shows an 87.2% probability of a 25 basis-point cut in September, versus 85.4% shortly before the release. The 2-yr note yield, at 3.64% just before the release, remains at 3.64%, and the 10-yr note yield, at 4.23% just before the release, remains at 4.23%.

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Originally Posted August 29, 2025 – The market has issues, including the PCE data