Week Ahead: Core PCE, Tariff Fallout, and a Crucial Test for Treasury Yields

The table below is published by Briefing.com every weekend and provides good detail on the coming week’s economic data releases.

Since the quarterly GDP data – including Q4 ’24 – has been influenced by the accelerated purchases of imports to avoid the Trump Administration tariffs, that makes that data point more “complicated” thus perhaps less meaningful than in quarters past. Real Final Sales (GDP excluding the change in inventory) will get a harder look until the tariffs are truly front-and-center, in the 2nd and 3rd quarters of 2025.

(The surge in imports late in Q4 ’24 and then in early ’25 is actually a negative for the GDP print, meaning that in the basic C + I+ G + (exports – imports) that surge in imports is a drag on GDP growth, which is why despite an healthy job market in Q4 ’24, the GDP data wound up slightly negative.

That leaves my key data point for the week as the April ’25 Core PCE, which as readers can tell from the table, is expected at +0.1%, along with overall PCE.

The inflation data, including PPI, which gets far less scrutiny today than in the 1990’s, for January, February and March ’25 actually came in quite favorable relative to expectations, which the mainstream financial media wasn’t really prepared for. Airline ticket price declines, was one major contributor to the better-than-expected inflation metrics in the first quarter of ’25.

The April, ’25 PCE data point will be the first important inflation metric for the capital markets post “Liberation Day”.

Bond Market Update:

Although tough to read this is Worden’s 10-year Treasury “yield” contract at the CBOE or Chicago Board of Options Exchange.

As long as the 10-year Treasury yield, stays below 5% (4.99% was the October ’23 high yield tick for the 10-year Treasury) and really stays below the January ’25 high yield tick of 4.81%, you can reasonably make the case that inflation is still contained, and the Treasury market is not “broken”.

Having managed money now for 30 years (as of May 1, ’25), it still amazes me the market cassandras and doomsayers that constantly peddle their viewpoints, despite the continued evidence otherwise. I understand the short-sellers on the equity side and the role they play and it’s a vital one, but eventually that cassandric comes to fruition or you’re wrong. It works the same for the long-only crowd, just the opposite.

Here’s a chart of the 30-year Treasury “yield” contract sent to me Friday, by this blog’s primary technician, Gary Morrow. Morrow is found over on X as @garysmorrow).

This chart is more “definite” about the rise in the 30-year Treasury yield and how it’s reached it’s October ’23 highs already, which presumably should be formidable resistance.

There is a lot to worry about regarding the Treasury market still: this blog post from early May ’25, talks about the difference between Treasury price action and the “inflation expectations” component of the sentiment indicators.

Friday morning, May 30th at 9:00 am central we will get an updated University of Michigan Sentiment Index report, within which is an “inflation expectations” measurement, which has been increasing in unfriendly way for the bond market.

One of these two has it wrong: either inflation expectations growth begins to temper and rollover, or the 10-year Treasury yield – which has pretty much ignored the rise in inflation expectations – will eventually trade above 4.81% and then 5%.

One final point: as someone who has paid close attention to the “good cop, bad cop” water dance between President Trump and then Treasury Secretary Bessent, I’ve paid careful attention to what the Treasury said in early April ’25 and then this week, since it’s a more-tempered, and measured take on the overall Administration fiscal policy, that has included more than just tariffs, but the budget bill, and crude oil, etc.

Treasury Secretary Bessent is starting to change the official objective of the Trump Administration fiscal policy from the $700 – $800 billion tariff revenue objective, along with lower interest rates, to reduce interest expense, to a policy that grows GDP faster than the Treasury debt, assuring that the debt interest expense does decline within the budget (presumably as revenue increases from faster GDP growth).

That’s a subtle (or maybe not-so-subtle) shift in policy, and the Treasury market yield will probably give us their answer.

Conclusion

This blog came into 2025 after two straight years of +25% total returns for the S&P 500., expecting lower equity returns, and probably a better more favorable bond market in terms of total return, driven by lower interest rates.

Each week, with new tweets, new data, new Administration statements, etc. the temptation is to revise both forecasts.

While this blog is getting more bullish on the equity outlook, I wonder about the implications that has for Treasury yields. A strong breakout above the S&P 500’s all-time-high of 6,147.43 from mid-February ’25, will make it hard for the longer-maturity Treasuries to rally, unless the FOMC cuts the fed funds rate.

The technicians who follow the Zweig breadth thrust data are very bullish, “expected, forward returns” for the S&P 500. The ZBT data was right in 2020 after the Covid meltdown, and was right again in late, 2022 and early ’23. The fundamental crowd is very worried about tariffs and inflation, and probably for good reason, but the framework gets a little doggy as the S&P 500 approaches it’s all-time-high from mid-February ’25.

Don’t shoot the messenger. I’m just thinking out load over the Memorial Day weekend.

Disclaimer: None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Investing may involve the the loss of principal even for short periods of time. None of the above information may be updated and if updated, may not be done in a timely fashion.

Thanks for reading.