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PCE on Friday

Monday markets were treated to the S&P Global flash PMIs (Purchasing Managers’ Indexes) for March for several countries. This data is intended to offer investors insight into how businesses are faring currently, in hopes that analysts will find it useful. As a result this information is thought to be influential to market price movements.

Except for when it is not, as was the case today. Although the report contained a fair bit of reference to tariffs and inflation, the market shrugged it off. So it seems the fear of inflation has appeared to lose its ability to scare anyone. Consider that Friday’s Personal Consumption Expenditures (PCE) report is perhaps the most influential number the Fed is watching right now, but the data here has only one recognizable pattern to it (see chart).

Though inflation has cooled from its post-pandemic highs, the impact of helicopter money still lingers, prompting Fed watchers to feel doubtful about the influence of continuing to hold rates high. Now, most investors have all fingers crossed for a rate cut or two this year.

Home Appliance Pricing Woes

One influence that should show up in the PCE report would include the price of appliances. These are considered the tip of the spear in the conversation about tariffs and inflation. But just how valid is that concept? Consider the second chart which compares the SPDR S&P Homebuilders ETF (XHB), with several of its appliance-company components.

This chart shows that nearly all of these companies are outperforming the index that they are a part of since the election (when the word “tariff” began to enter the financial news). Johnson Controls (JCI) is actually up 12% since then, though all others have declined. This chart seems to indicate that investors are more concerned about housing demand rather than inflation in particular.

Is Good Inflation a Thing?

At least one company is likely to benefit from inflationary pressures and the outlook of continued high interest rates. Charles Schwab (SCHW) has been the beneficiary of a very large self-clearing operation. This allows them to benefit from the spread between what they can earn on investors held cash and the interest rates they pay out to their customers (which aren’t too bad actually). 

If there were such a thing as good inflation, it would be in the minds of SCHW shareholders. Schwab’s business model benefits from higher interest rates. Should the Fed enact rate cuts, expect this broker’s stock price to see downward pressure.

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