Core PCE rose again in February: time to sell semiconductor stocks?

March 31, 2023

S&P 500 is up another 1.0% on Friday after the U.S. Bureau of Economic Analysis said the core personal consumption expenditures price index climbed less than expected in February.

What does the reading mean for the Fed?

Versus the prior month, the Fed’s preferred inflation gauge was up 0.3% versus a 0.4% increase expected.

Much of the softness was related to a decline in energy prices. Reacting to today’s data, Jeffrey Roach – Chief Economist at LPL Financial said:

Inflation will likely be below 4.0% by the end of the year, giving the Federal Reserve some leeway to cut rates by the end of the year if the economy falls into recession.

Headline PCE also climbed 0.3% for the month versus a much larger 0.6% increase expected. Year-to-date, the benchmark index is up about 7.0% at writing.

BofA analyst sees more upside in chip stocks

Also on Friday, a Bank of America analyst said there’s reason to believe that the semiconductor stocks are not out of room to run just yet.

“SOXX” – the iShares Semiconductor ETF is already up 30% for the year. Defending his view on CNBC’s “Squawk Box”, Vivek Arya noted:

If we look historically, every time semiconductor index has gone down by over 20%, we’ve had a nearly doubling from the lows. So, if look at when the rally started late last year, we’re still only halfway done.

He’s convinced that continued innovation particularly in artificial intelligence and electric/autonomous vehicles will keep the space strong moving forward. Chip stocks are a notable beneficiary of the Inflation Reduction Act as well.

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