PCE data comes in below expectations … why Louis believes stocks will end the year strongly … Luke says Wednesday’s selloff was overdone … watch the 10-year Treasury yield Inflation continues to drive the bus. Fortunately, we received good news on inflation this morning, and markets got bullish. The Fed’s favorite inflation gauge – the core Personal Consumption Expenditures (PCE) price index – rose just 0.1% in November, less than the forecast of 0.2%. On a year-over-year basis, it climbed 2.8%, which was also one basis point below expectations. The headline numbers were also slightly softer than expected. Month-over-month headline PCE came in at 0.1% while the yearly number was 2.4%. As with core PCE, both these figures were 0.1% below forecasts. As to the overall inflation trend, year-over-year core PCE was flat from October to November, with both readings at 2.8%. And headline year-over-year PCE rose slightly, from 2.3% to 2.4%. So, even though this morning’s reading was below expectations, it hasn’t resumed falling as we’d prefer. However, housing inflation, which has been perhaps the stickiest component within the PCE data, finally showed signs of cooling. It rose just 0.2% Other notable parts of the report include personal income, which climbed only 0.3%, less than October’s 0.7% number and below than the forecast of 0.4%. Spending also failed to match forecasts, climbing 0.4%, below the expectation of 0.5%. Overall, the report nets out to a positive, which is why we’re seeing Wall Street climbing higher as I write mid-morning. Bottom line: As inflation goes, so goes the Fed’s interest rate policy… and the market… and your portfolio. But there’s good news from legendary investor Louis Navellier… Don’t get thrown by the Fed’s updated rate-cut forecast in 2025, Louis says On Wednesday, the Fed cut its forecast for projected rate cuts from four down to two. This resulted in a post-FOMC selloff Wednesday afternoon, and the markets haven’t yet recovered. Louis’ quick take is “don’t worry.” Here he is from Wednesday’s Growth Investor Flash Alert podcast: The Dot Plot signaled only two rate cuts next year. Don’t worry about this, because the Fed can’t see that far. What’s going to happen is there’s going to be four-to-five more rate cuts in Europe next year. That’s going to drag our treasury yields lower. So, the Fed may have more rate cuts than just two because of the downward pressure from rates in Europe… As [European] rates come down, it’s going to put pressure on our rates. It’s as simple as that. The reason the Fed didn’t say this is because they can’t see that far. The farther out you look, the fuzzier it gets. As to the market’s selloff on Wednesday after the Fed meeting, Louis continues: We’ll be rallying for the rest of this year because the earnings environment is great. We traditionally have a Santa Claus Rally. And then we gap up in the new year… So, do not worry about the immediate reaction to the FOMC statement and the new Dot Plot. | Recommended Link | | | | Multiple flash crashes in 2025? According to new research from Luke Lango a little-known anomaly in the markets is growing in strength and it could lead to massive levels of volatility next year even with stocks being in a bull market. Here’s how to profit from it… |  | | Meanwhile, Luke Lango also believes that the Fed will be more dovish in 2025, and suggests the recent selloff is a buying opportunity While the median Fed forecast pegged just two quarter-point rate cuts next year, traders have gone “full hawk” and are now putting the highest probability on the Fed cutting rates just once next year. As you can see below, the CME Group’s FedWatch Tool puts 33.3% odds on just a single quarter-point rate cut by the December 2025 meeting. 
Source: CME Group Here’s Luke’s take: With next year’s anticipated cuts now essentially getting priced out, the market is adjusting to a world where the Fed may be finished cutting interest rates. As a result, Treasury yields spiked. And stock prices, cryptos, and commodities all tanked into the close. But we think this reaction is quite overdone… [Wednesday’s] nasty flush is due to investors’ fear that the Fed is done cutting rates. But in reality, the central bank was just reacting to the hot inflation data we received in October and November. And already, that data has since softened here in December. In support of his point, Luke highlights the Empire State Manufacturing Survey’s Prices Received Index, which is a good proxy for inflation. It plunged in December to 4.2, its lowest level since July 2023. The same index in the New York Fed Services Survey (another inflation proxy) fell to 11.7 this month. That’s its lowest reading since February 2021. Finally, Luke flags the S&P Global Composite PMI Report. It found that average prices charged for goods and services only rose very modestly in December. And they’re now climbing at their slowest rate since prices began rising in June 2020. And then, there’s this morning’s cooler-than-expected PCE data. Here’s Luke’s bottom line: Real-time data suggests that reinflation worries are already outdated. It appears that inflation pressures are easing, and disinflation trends are, thankfully, re-emerging. We expect such disinflation will continue over the next few weeks and months. And that should encourage the Fed to return to a more dovish stance. The market will then start pricing in more rate cuts. Treasury yields will fall, and stocks will rebound. That’s why we think [Wednesday’s] crash creates a great buying opportunity. Luke clarifies that there’s no need to cannonball back into stocks. He recommends waiting until technical support arrives and we begin to see a sustained rebound. But overall, Luke tells his readers, “Don’t stress this selloff.” For the specific AI plays Luke is recommending in Innovation Investor, click here. To track Luke’s forecast, keep your eyes on the 10-year Treasury As we detailed in the Digest on Wednesday following the FOMC meeting, the soaring 10-year Treasury yield is a problem for stocks. The higher it climbs, the more pressure it puts on most stock prices because a higher yield means a higher discount rate, which lowers the current valuation of a stock. To get a better sense for this, below is a chart of the 10-year Treasury yield since summer of 2023. It’s been in a long-term downward sloping channel. However, with this week’s jump higher, it’s now broken north of that channel. This is bearish, at least for the moment. 
The big question is “will this move reverse so that the 10-year yield returns to its down-sloping channel, or will we keep pushing higher?” To help us answer this, let’s borrow two trading indicators that Luke regularly uses in his trading service, Breakout Trader – the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator. | Recommended Link | | | | TradeSmith’s CEO, Keith Kaplan, just launched a bold attack on the “traditional” way you’re supposed to make money from the markets. At first, you might find what he has to say surprising — even controversial — but you’ll want to hear him out. Because he’s revealing a game changing way you could collect $465... $1,170... $2,060 (or even more) in as little as four days — and that’s just to start. Click here now to see how it works. |  | | What these two indicators suggest about the juice remaining in the 10-year’s move The RSI is a momentum indicator that measures the extent to which an asset is overbought or oversold. A reading over 70 suggests an asset is “overbought” (and likely poised to pull back as mean reversion kicks in) while a reading below 30 means it’s “oversold” (and poised to climb, also thanks to mean reversion). Meanwhile, the MACD indicator reflects changes in a price trend’s strength, direction, momentum and duration. Traders use this tool by analyzing the location of the MACD line relative to its signal line. At its most basic interpretation, if the MACD crosses above the signal line, it’s considered a bullish crossover, and potentially a buy signal. The opposite is true as well. Below, we look at the same 10-year Treasury chart but now we’ll add the RSI and MACD in the lower two panes. The top pane shows the RSI. Note that it’s at 60 and heading higher as I write. This signifies strong upward momentum, yet not so overbought that it suggests an impending pullback. Similarly, the MACD is climbing above its signal line. However, its level isn’t far about the zero line. This also point toward a continuation of upward pressure. 
These readings support Luke’s suggestion for patience when buying back into the market. Though conditions can shift quickly, as I write, the edge goes to a higher 10-year Treasury yield in the short-term which, traditionally, is a headwind for stocks. That said, we’re seeing buyers stepping back into the market today, and remember – bullish momentum trumps everything else. If investors want to push the market higher, they’re going to do it, regardless of what any given indicator suggests. This is why our recommendation remains the same as it’s been for months: Stay with this bullish trend until your investment plan signals it’s time to exit. Before we sign off today, a reminder to check out the latest AI research from Luke, Louis, and Eric Fry The AI Revolution is about to enter a new phase where the Phase 1 winners - “AI enablers” – step aside for a new batch of Phase 2 market leaders – the “AI appliers.” These “appliers” are companies employing AI technology within their own products and services. To help investors identify the top AI appliers for 2025, Luke, Louis, and Eric have spent the last few weeks collaborating to create a “best of the best” portfolio. Earlier this week, they published their research in a video broadcast you can check out here. With both Luke and Louis confident that this bull market has plenty of juice left to drive prices higher in 2025, this week’s mild selloff could provide a great entry point on some of these leading AI applier stocks. To learn more, check out their research video here. Have a good evening, Jeff Remsburg | 
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