Greens Shoots from Snow

Green Shoots?

We got the next chapter in the inflation saga this week and nothing broke except the 5th metatarsal in my right foot (8+ weeks until I can begin my golf season). March is also starting off on the right foot (except for me) as stocks rallied on Friday and interest rates fell slightly as the economy looks to be on steady ground. If anything, there may be green shoots emerging as technology companies are generating higher revenues and the risk for continued rate hikes looks to be dissipating as inflation has stabilized.

The PCE

The inflation data released this week was the Personal Consumption Expenditures (PCE) which is the Fed’s preferred measure of inflation in setting interest rate policy. This week it came in as expected at 2.8% which is slightly lower than January but still too high to make the assumption that several rate cuts are happening this year. If the PCE, CPI and PPI all stagnate at their current levels then rate changes may be next year’s business.

The Stock Market

One notable positive this week was that Personal Income rose 1% which was much higher than the expected 0.3%. It also highlights that the economy is ok and February’s earnings reports put up good numbers so there is no obvious crack in the economy.

Also, technology and artificial intelligence has kicked off a round of capital spending that looks like it is just getting started. The additional computing power means we will see an upgrade cycle of equipment and software which many companies are seeing translate into an acceleration of revenues and profits.

You can see it in the chart above of the S&P 500 in the upper right-hand corner. Momentum is clearly higher and there is some evidence of broadening beyond the technology stocks which would give the stock market another engine to keep chugging along.

Paul McCarthy of Kisco Capital, LLC

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Paul J McCarthy III CFA

President, Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.