Nasdaq set to fall as PCE price inflation eases as expected

US stock futures, led by a 0.55% decline in Nasdaq futures, were in the red following the release of July's PCE price index data, which showed the Fed's preferred inflation gauge easing as expected with a 0.2% monthly gain for headline PCE and a 0.3% rise for core PCE. This market reaction follows the S&P 500 notching a new all-time high of 6,500 in the prior session and occurs as the Russell 2000 significantly outperformed major indices in August, reflecting a broader market shift towards value stocks.

Analysis

U.S. stock futures are indicating a lower open, led by a 0.55% decline in the tech-heavy Nasdaq, despite the release of in-line inflation data. The July Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, rose 0.2% monthly, while the core measure increased 0.3%, both meeting consensus forecasts. This muted pre-market reaction follows a strong previous session where the S&P 500 surpassed 6,500 for the first time. A key underlying trend highlighted is a market rotation; while major indices posted solid gains for August, they were significantly outpaced by the Russell 2000, which is on track for a 7.6% gain. This suggests a shift in investor capital from market-leading technology stocks toward lower-multiple value stocks. The market is heading into a long weekend, with a cautionary note from Slatestone Wealth about September's historical volatility, which could be contributing to the risk-off sentiment.

Key Decisions for Investors

• Consider re-evaluating portfolio exposure, as the Russell 2000's significant outperformance in August suggests a potential rotation from high-multiple technology stocks into value-oriented equities.
• Given the market's negative reaction to in-line PCE data, investors should maintain a close watch on upcoming macroeconomic indicators, as the bar for a positive surprise that could further fuel the rally appears high.
• With the market entering a historically volatile month in September and a holiday-shortened week, it may be prudent to exercise short-term caution and consider holding some cash to capitalize on potential pullbacks.