Investors needed a data point to justify the Federal Reserve pausing or even cutting interest rates. They have that now with the Personal Consumption Expenditures (PCE) Index.
The PCE rose by 3% year-over-year in October, in line with forecasts. This measure excludes food and energy. The Fed prefers this figure because it is less volatile. Few may manipulate this figure. For example, the OPEC+ decision to cut production will move energy prices, which influences Consumer Price Index data.
Ahead of the expected results, REITs and regional banks rallied. They are sensitive to interest rates. Realty Income (O) is up 18.96% from its 52-week low. W.P. Carey (WPC), which spun off its office real estate assets onto NLOP stock, is up 22.77% from its lows.
Regional banks are also up this month. Truist Financial (TFC) is up 13.52% while Keycorp (KEY) gained 23.14% in November. Investors may accumulate bank stocks like Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C). They benefit from no changes in interest rates.
On Nov. 29, 2023, the Commerce Department posted GDP growing at 5.2%. The impressive growth sets the Fed on an easy policy decision. It may leave rates at current levels in December. Markets may want a rate cut but that is wishful thinking. Furthermore, rate cuts signal bad news for markets and the economy. The Fed would need to cut rates if unemployment is rising too quickly or the economy is slowing down by too much.
