Recently, some friends asked me what PCE is and why I pay attention to it every time the U.S. stock market fluctuates. Honestly, if you want to copy Taiwan stocks or U.S. stocks, this indicator really can't be ignored.

First, the conclusion: PCE is the change in prices of goods and services that Americans consume daily. It sounds simple, but it directly determines whether the Fed will raise or cut interest rates, thereby affecting global stock markets, exchange rates, and even your investment costs. Compared to CPI, which everyone is more familiar with, the Fed actually pays more attention to PCE because its statistical method is closer to actual consumer behavior, with dynamically adjusted weights that can reflect changes in purchasing habits in real time.

I found that many Taiwanese investors don’t understand the difference between core PCE and overall PCE. Simply put, overall PCE includes everything, but core PCE excludes food and energy. Why exclude them? Because oil prices can rise overnight, and vegetable prices fluctuate, these short-term changes can create false signals. The Fed cares about core PCE—the true face of long-term inflation trends. For example, recently, oil prices rose, causing the overall PCE monthly growth rate to increase, but core PCE didn’t move much. The Fed wouldn’t raise interest rates just because oil prices fluctuate, and the market is very smart—what they focus on is the core PCE data.

Why is PCE more important than CPI? The key difference lies in the statistical logic. CPI weights are fixed and usually only adjusted every two years, which can lag behind actual consumer purchasing behavior. PCE, on the other hand, adjusts weights quarterly, allowing it to capture substitution effects in consumption in a timely manner. Additionally, CPI only covers goods and services directly consumed by households, accounting for about 40% of U.S. GDP. PCE? It nearly includes all personal consumption expenditures. Therefore, when PCE data is released, U.S. stocks and the dollar tend to fluctuate more intensely than when CPI is released—because the market knows PCE is the ultimate reference for the Fed.

Factors influencing PCE are quite straightforward: inflation, employment, wages, interest rates, and consumer confidence. Rising inflation means decreasing purchasing power; high employment increases disposable income; rising wages boost purchasing power. Low interest rates stimulate borrowing and consumption; when consumer confidence is high, people are more willing to spend. These factors are interconnected and jointly determine the direction of PCE.

When is PCE released? On the Friday of the fourth week of each month at 8:30 a.m. Eastern Time, corresponding to 8:30 p.m. Taiwan time (7:30 p.m. during daylight saving time). It reports data from the previous month. This timing coincides with the U.S. stock market open, so once the data is out, U.S. stocks will immediately fluctuate, and the next day’s Taiwan stocks will also shake accordingly.

The most direct impact is on U.S. stocks. If core PCE exceeds expectations, the market will anticipate the Fed to raise interest rates or keep rates high longer, increasing corporate financing costs, especially for high-valuation tech stocks, which will be pressured. If core PCE is below expectations, rate cut expectations will rise, corporate earnings outlooks improve, and U.S. stocks usually rise, with tech stocks gaining more significantly. I remember recently, when PCE data was below expectations, the Nasdaq rose 1.2% that night, and NVIDIA jumped 2.5%. That’s the power of PCE.

What about Taiwan stocks? The impact is indirect but equally important. Taiwan’s electronics industry is highly correlated with U.S. tech stocks, and the U.S. remains Taiwan’s main export market for electronics. PCE above expectations → U.S. stocks fall → Taiwan electronics stocks also decline; overheating inflation can also hurt U.S. consumer demand, reducing Taiwan’s electronics exports. Conversely, PCE below expectations → U.S. stocks rise → Taiwan electronics stocks also go up; rate cut expectations will boost U.S. consumption, benefiting Taiwan exports. But remember, Taiwan stocks are influenced not only by PCE but also by domestic economic data, cross-strait relations, and other factors. So, PCE’s influence on Taiwan stocks is supportive, but in short-term market judgment, it remains an important reference.

The Taiwan dollar exchange rate is also affected by PCE. PCE above expectations → overheating inflation → Fed rate hike expectations increase → U.S. dollar appreciates → Taiwan dollar depreciates. Conversely, the opposite. This is important for Taiwanese investing in U.S. stocks because it involves exchange costs. When the Taiwan dollar depreciates, converting TWD to USD for U.S. stock investment becomes cheaper; when it appreciates, selling U.S. stocks to convert back to TWD yields more TWD.

How to operate after data release? I suggest a three-step approach. First, prepare one hour in advance: check market expectations, review your positions, and set stop-loss and take-profit levels. Second, after the data is released, act based on the “difference between actual and expected values.” If core PCE exceeds expectations, immediately cut losses on tech stocks, avoid blindly bottom-fishing; if the next day’s Taiwan stock market opens with electronics falling, consider reducing positions at high points; if the dollar appreciates, consider USD exchange needs. If core PCE is below expectations, you can hold or even add to tech stocks; if the next day’s Taiwan stocks open higher, consider adding at lows; if the dollar depreciates, TWD appreciates. If core PCE meets expectations, maintain your positions, stay cautious, and wait for clearer signals. Finally, 1-3 days after the data release, follow up on Fed officials’ speeches, U.S. and Taiwan stock trends, and adjust your portfolio structure.

Long-term, you can judge the market environment based on the year-over-year growth rate of core PCE. If it exceeds 3%, it indicates high inflation, and the market tends to be bearish—invest cautiously, focusing on defensive sectors. If it’s between 2% and 2.5%, it’s a stable inflation period—this is the best environment, suitable for heavy positions in tech and growth stocks. If it’s below 2%, indicating low inflation or deflation, the market is bearish, and the economy may be recessionary—reduce stock holdings. Combining Fed interest rate policies, during rate hike cycles avoid overvalued tech stocks; during rate cut cycles, long-term positions in tech and electronics are favorable.

For Taiwanese investors, it’s also important to consider Taiwan’s market characteristics. If core PCE remains stable, U.S. consumer demand is strong, and you can long-term hold Taiwan electronics stocks and U.S. tech stocks. If long-term core PCE exceeds 3%, U.S. consumer demand is weak—reduce electronics holdings and increase domestic consumption sectors. If long-term core PCE is below 2%, the U.S. economy faces recession risks—reduce stock assets, increase cash and TWD bonds.

Finally, a reminder: don’t rely too heavily on PCE data alone. It’s just one factor influencing the market; you should also consider non-farm payrolls, GDP, individual stock performance, and other indicators. After data release, market volatility can be large, so set strict stop-loss and take-profit levels, control your positions carefully, and avoid blindly following the crowd. Incorporate PCE into your macroeconomic analysis framework to develop truly effective investment strategies aligned with the current situation.