Arm weakens after US inflation setback

A reality check for US markets today caused a reversal of fortunes for Arm Holdings after it earlier soared up the list of most valuable UK-based companies.

13th February 2024 15:22

by Graeme Evans from interactive investor

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The momentum for tech giants ARM Holdings ADR (NASDAQ:ARM) and NVIDIA Corp (NASDAQ:NVDA) came to a halt today after hot inflation figures raised the prospect of US interest rates staying high for longer.

Wall Street now sees June as the most likely month for a first cut in Federal Reserve policy, a significant delay on the March date predicted by many traders earlier this year.

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January’s inflation reading of 3.1% compared with forecasts that the annual rate will dip below 3% for the first time since March 2021.

With the fight against inflation not yet over, the S&P 500 index retreated more than 1% after finishing Monday’s session in record territory with a foothold above 5000. The FTSE 100 index continued its disappointing start to the year by falling 53.04 points to 7520.65.

Nvidia, which yesterday briefly overtook Amazon as the world’s fourth-largest company, fell 2% after the opening bell.

The semiconductor firm had been 46% higher as this year’s best-performing S&P 500 stock, having added $561 billion (£446 billion) in value during those six weeks. Deutsche Bank points out this is more than the entire worth of Europe’s largest company, Novo Nordisk A/S ADR (NYSE:NVO).

Demand for new technology “driven by all things AI” meant shares in Cambridge-based chip designer Arm jumped another 29% last night. Fuelled by the guidance in last week’s strong third-quarter results, the shares were $149 compared with $51 in September’s Nasdaq flotation.

The valuation of more than $150 billion (£119 billion) left it behind only Shell (LSE:SHEL), the Surrey-based gas group Linde (NASDAQ:LIN) and AstraZeneca (LSE:AZN) among the most valuable UK-headquartered companies.

However, the stock fell $22 to $126 after today’s inflation reading caused investors to review their earlier hopes of a “Goldilocks” scenario for the US economy.

As UBS Global Wealth Management pointed out this morning, markets have been pricing in plenty of good news with the MSCI US index at a 20% premium to the 15-year average.

It added: “The S&P 500 is now trading close to the 5,000 level where we would expect it to end the year in the event of a soft landing.

“To reach our upside outcome of 5,300 by the end of 2024, we would need to see further positive signs on inflation, Fed policy, and growth, including from data and earnings releases this week.“

The US results season is now about 80% complete, with earnings growth of more than 7% compared with UBS’s original expectations for the fourth quarter of 4–5%.

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