Four Consecutive Months

Macro Perspectives

• US stocks were mixed heading into afternoon trading Thursday, with the S&P 500 and Nasdaq showing slight gains, while the Dow Jones dropped over 50 points as investors digested the latest PCE data.

• PCE prices in January saw a 0.3% month-over-month increase, up from 0.2% in December, and the core index rose to 0.4% from 0.1%, as expected.

• In contrast, Snowflake shares plummeted 20% amid news of the CEO's retirement and weak revenue guidance.

• February has been positive overall, with the Nasdaq leading with a 6% gain, followed by the S&P 500 at 5.1%, and the Dow at 2.3%.

• This marks the Dow's first four-month winning streak since May 2021.

The PCE report, the Fed's favoured inflation measure, showed a continued fall in year-over-year inflation for the month of January. That's four consecutive months under 3%, and approaching the Fed's target of 2%.

We have one more inflation data point before the Fed's March meeting: February's CPI, which will come on March 12.

As we've discussed over the past few months, insurance continues to be the hot feature of the inflation data. This is the impact of rising insurance premiums on shelter, physician services and (mostly) transportation.

The change in the motor vehicle insurance component of CPI was up 20.6% compared to January of 2023. It's now up 39% from pre-covid levels. Here's an update to the chart we looked at this past December …

The good news: this is a lagging feature (likely a late stage feature) of a hot inflationary period.

Remember, the massive monetary and fiscal response to the pandemic (plus the subsequent agenda spending binge) ramped the money supply by 40% in just two years. That was almost a decade's worth of money supply growth (on an absolute basis), dumped onto the economy in a span of two years.

That inflated asset prices and the insurance industry spent the past two years raising the price to insure those higher priced underlying assets.

With that, heading into Q4 earnings season, insurance companies were expected to grow earnings by 26% for the full year 2023. It turns out they doubled that growth rate (53% year-over-year earnings growth). This chart of Allstate looks like many of the insurance stocks …