This past week was marked by a mix of softening economic indicators, persistent trade policy turbulence, and central banks navigating an uncertain landscape. This sets the stage for a volatile start to April with looming tariff deadlines (Liberation Day on April 2nd) and a major jobs report released next Friday. Global tensions have escalated as the U.S. announcement of a 25% tariff on all foreign-made cars and parts contributed to volatility in equities and other asset classes.
Inflation and Deficits
On Friday, the Fed’s preferred inflation measure, Personal Consumption Expenditures or PCE, showed a year-over-year increase, with the core PCE (excluding food and energy) rising by 2.8%, slightly above the expected 2.7%. On a monthly basis, core PCE increased by 0.4% from January, signaling persistent inflationary pressures. The higher-than-anticipated figure suggests inflation remains a concern, potentially delaying rate cuts.
We also got personal income and spending on Friday. In the report, personal income rose by 0.9% in February, exceeding forecasts of a 0.4% increase, driven partly by government payments and solid wage growth. However, personal spending dropped by 0.2%, against expectations of a 0.1% gain, marking a notable slowdown in consumer activity after a post-holiday dip. This mixed result hints at resilience in income but caution in spending amid economic uncertainty.
Also, consumer confidence dropped this week to 57.0 in March, down from 64.7 in February, marking a two-year low.
The S&P 500
Below is a chart of the S&P 500 futures which shows a decline from a high in February to a low on March 13th (5559). The bounce that held up through Wednesday had promise of generating a new rally up to the top of the chart but it looks like the bulls threw in the towel to close out this week’s trading. The fall on Friday was impulsive and broke a key support level (5650) which is not a good sign for next week. Next support level is the March 13th low at 5559 and if the S&P continues to fall then we have to consider a longer timeframe to identify potential downside.
Below is a long-term chart (monthly bars) of the S&P 500 Index that goes back to the 2007 top. Some technical observations: 1) There has been no connect to the 21EMA (green line) since November of 2023 and for the 55EMA (yellow line) it has been since October of 2022 – this shows an extended market that needs mean reversion; 2) The Relative Strength Index (RSI) has shown a negative divergence for several years and this indicates a weakening uptrend; 3) The MACD (momentum indicator) is about to cross to the downside and you can see that is infrequent on this timeframe.
One More Chart
Digesting all of this and applying some fibbonacci retracement levels, we can see a 38.2% FIB that aligns with the low from last August at 5136. You can also see that the March 13th low bounced off of the 23.6% FIB at 5524 and a break of this level next week would likely bring us down to the next step lower at 5136.
Best to take these moves one week at a time as the economic data shows mixed signals as inflation comes in higher than expected (or wanted) while robust income growth is being offset by weaker consumer spending. The Fed’s next rate change will likely hinge on whether these trends persist, especially with the core PCE figure suggesting inflation isn’t cooling as quickly as hoped.
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President, Kisco Capital
