August Data Keeps Us Bullish on These Holdings

*August PCE data supports the path for further Fed rate cuts

*Falling oil and gas prices should fuel further inflation progress

*Weakening income and savings rate data keeps us bullish on Costco and Amazon

The August Personal Income and Spending data is out, as is the data for the Fed’s preferred inflation metric, the Personal Consumption Expenditure (PCE) price index.

There were some positive surprises in the data but there were also some not-so-positive ones. The positive surprises include the headline PCE price index coming in at 2.2% on a year-over-year basis, slightly better than the 2.3% forecast and a nice step down from the July figure of 2.5%. While the August core PCE price index reading came in at 2.7% on a year-over-year basis, matching market expectations, the sequential figure for August registered at 0.1%, down from 0.2% in July.

As we think about the path forward for this data set, the drop in oil prices and gas prices tracked by AAA should translate into favorable figures in September. Those declines, which reflect the weakening economy in China but also prospects for increased oil production from OPEC+ in December, support our decision to close out the Portfolio’s position in the Energy Select Sector SPDR Fund XLE shares at $89.58 in early September. XLE shares closed on Thursday night at $85.45.

The combination of those figures will support further rate cuts this year by the Fed. When it comes to the topic of rate cuts, the next set of data to watch will be next week’s September PMI data as well as September employment data.

So, what was the not so good news?

August Personal Income and Consumption figures were lower than expected and down compared to recent months. At the same time, the personal savings rate came in at 4.8%, its lowest level so far this year and a continuation of the steady slide lower from 5.5% in January. These figures help explain the comments we’ve heard from retailers in recent weeks about consumers becoming more selective, discerning, discriminating or choosy.

In our view, that bad news is good news for our shares of Costco COST and Amazon AMZN. Coming up, we’ll share our take on Costco’s earnings report from Thursday night and why we suspect the August Personal Income, Consumption and Savings Rate figures mean holiday shoppers will gravitate toward Amazon’s upcoming shopping event on October 8 to 9, 2024.

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At the time of publication, TheStreet Pro Portfolio was long COST and AMZN.