S&P 500 outlook after PCE inflation data on Friday

S&P 500 will likely open in the green this morning after the U.S. Bureau of Economic Analysis said the core personal consumption expenditures price index was in line with expectations in December.

What does it mean for the S&P 500 index?

For the month, the Fed’s preferred inflation gauge printed up 0.2% versus a 0.1% increase in November.

Still, Jacob Pedersen, the head of equity research at Sydbank recommends that investors be cautious in 2024. On CNBC’s “Squawk Box Europe”, he said today:

Versus last year, the said index was up 2.9% in December versus the Dow Jones estimate for a 3.0% increase. S&P 500 is now up nearly 19% versus its low late October.

Lower rates could be a tailwind for SPX in 2024

On Friday, the Bureau of Economic Analysis also reported the headline PCE (including food and energy) up 0.2% for the month. Year-over-year, it remained unchanged at 2.6%.

It is worth mentioning here that today's inflation data creates more room for the U.S. Federal Reserve to switch to cutting rates this year - which may serve as a tailwind for the S&P 500 index.

Such a narrative is more in line with Lori Calvasina - the head of U.S. equity strategy at RBC Capital Markets who recently said she expects the benchmark index to hit 5,150 in 2024.

Also today, personal savings rate was reported to have declined sequentially from 4.1% to 3.7% in December. Members of the Federal Open market Committee are scheduled for their next rate meeting on January 30th.