Interactive Investor

Market snapshot: another record falls on Wall Street 

Stocks marched higher in the US overnight despite the latest inflation data, with Nvidia back in the news. ii's head of markets explains what's happened and how investors are reacting.

13th March 2024 08:20

Richard Hunter from interactive investor

US markets resumed their seemingly inexorable march higher despite an inflation reading which came in slightly hotter than expected.

While headline inflation data was in line with expectations, rising by 0.4% in February after a 0.3% rise in January, the core inflation number excluding energy and food prices rose by 0.4% on the month and 3.1% on the year, both of which were higher than estimates.

Despite an initially mixed reaction to the prints, investors chose to focus on the more general direction of travel, which is currently signalling the ideal outcome of inflation being overcome without undue damage to the economy. In addition, without currently higher shelter and fuel costs, the inflation picture would be tending towards benign.

The net result of investor deliberations was that a cut in interest rates remains on the table for June, notwithstanding the Federal Reserve having urged over recent months that any decision will remain data dependent. Markets have apparently now accepted that the previous consensus of up to six cuts this year beginning in March was way off the mark, and that at the present time there seems little pressure for the Fed to act at all given the current economic output.

The resumption of optimism led to another bounce in the main indices which included a fresh record closing high for the benchmark S&P500. There was a notable bounce in the shares of Oracle Corp (NYSE:ORCL), which rose by more than 11% after exceeding earnings estimates and also intriguingly mentioning that there would be an upcoming joint announcement with the current market darling NVIDIA Corp (NASDAQ:NVDA), whose shares also rose by a further 7%.

Other household tech names such as Meta Platforms Inc Class A (NASDAQ:META) were also again drawn into a new bout of buying interest which has led to the mega cap technology stocks again being at the vanguard of market gains.

As such, the main indices continue to forge ahead and, in the year to date, the S&P500 is now up by 8.5%, followed closely by the Nasdaq which has added 8.4%, while the Dow Jones has risen by 3.5%.

Asian markets steadied as more local issues continued to dominate investors’ attention. China remains in the forefront of the headlines, with an apparently ebbing economy largely being left to its own devices, and while the authorities have tinkered at the edges in terms of stimulus, investors have been disappointed by the lack of larger and more focused rescue measures.

In Japan, meanwhile, the current hot topic of debate centres around whether the Bank of Japan will be seeking to exit from its negative interest rate policy, which has put some support under the yen. The potential move would follow a week of wage negotiations across the country, where pay rises could trigger a resurgence of spending and consumer confidence, adding further strength to the economy.

Early news in the UK centred around an initial estimate of GDP growth, which added 0.2% in January as expected, largely driven by improved contributions from retail and housebuilding. While the number could signal an early exit from a brief and shallow UK recession, the February numbers will take on added significance as to whether any momentum is being established.

The case for interest rate cuts from the Bank of England remains finely balanced, further complicated by the release of figures yesterday suggesting a softening of wage growth which reignited the debate on the timing of a first cut. August remains the favourite in terms of market consensus, but the fact that there is an increasing amount of data pointing to cuts in the near future has had a marginally positive impact on sentiment, as partly evidenced by a recovery in the domestic FTSE250 which now stands down by just 0.4% so far this year.

The FTSE100 index has also seen something of an improvement over recent trading sessions and has now edged back into positive territory for the year, albeit by a marginal 0.3%. In early trade, British American Tobacco (LSE:BATS) shares edged higher following the announcement that it would be earmarking the £1.5 billion proceeds of the partial sale of its stake in ITC for a further buyback. Elsewhere, company specific news was in short supply.

The premier index has recovered from a deficit of more than 3% in mid-January to stand fractionally higher, although, rather like the UK economy as a whole, investors generally are considering that a full recovery may be too early to call.

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