Fed’s preferred inflation gauge eases to 6.0%: time to turn bullish?

S&P 500, on Thursday, is holding on to its gains from last night after the Bureau of Economic Analysis said the core personal consumption expenditures price index eased to 5.0% in October.

Cameron Dawson reacts to the economic data

For the month, Fed’s preferred inflation gauge was up 0.2% versus a 0.3% increase expected.

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A day earlier, Chair Powell signalled a 50-bps increase in December and said he still saw path to a soft landing that we reported here. Still, Cameron Dawson of NewEdge Wealth on CNBC’s “Squawk Box” recommended caution since earnings estimates are still too high.

I think as the market continues to trade higher, the risk-reward becomes increasingly unattractive. If we look at earnings still needing to come down for next year, it gets a bit more treacherous the more we trade higher.

To that end, she recommends only investing in stocks that are still trading at reasonable valuations.

What would it take for a new bull market to kick off?

Also on Thursday, BEA said spending was up 0.8% in October – roughly in line with expectations while personal income gained 0.7% – well above the 0.4% estimate.

PCE inflation including food and energy increased 6.0% on a year-over-year basis – a step down from 6.3% record in September. Still, Dawson fixated on “earnings growth” as a prerequisite of a new bull market.

In order to get back up to prior highs and start a new bull market past those prior highs, we have to see it come from earnings growth. We have to grow into those high valuations.

For the year, the S&P 500 is now down about 15%.