Range-bound stocks. U.S. stocks are higher this morning, but the S&P 500 Index is poised for its second straight week of losses. The S&P 500 has yet to break out from a 2.5% trading range it has been in since September 5, and there has been modest weakness under the surface as defensive and large cap stocks have outperformed cyclicals and small cap stocks. Still, the S&P 500 has held support at the 50-day moving average (2,950), so the index may continue to hover just below record highs.
Core PCE picks up. Core personal consumption expenditures (PCE) rose 1.8% year over year in August, faster than a 1.6% pace in July. Even though core PCE is still noticeably below the Federal Reserve’s (Fed) 2% target, consumer inflation has shown signs of life recently amid calmer trade tensions and a pair of Fed rate cuts. In August, the core Consumer Price Index rose 2.4% year over year, one of the fastest paces of growth in this economic cycle. Overall, inflationary pressures still look manageable.
A mixed bag in durable goods. Durable goods orders rose 0.2% month over month, higher than consensus expectations for a 1.1% decline. Even though the headline data was better than expected, underlying details on corporate demand were especially discouraging. Orders of nondefense capital goods (excluding aircraft), a good gauge of future business spending, declined 1.7% year over year. Capital expenditures (capex) have stalled for most of this year as companies have shelved expansion plans amid trade uncertainty, a key reason we reduced our 2019 gross domestic product forecast to 2%.
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