Market snapshot: mixed messages for investors

US markets ended mixed after a breathless week which was energised by blowout earnings from NVIDIA Corp (NASDAQ:NVDA) and which saw all the main indices at or nearing record levels.

The surge so far this year has been achieved despite there being neither the number nor the extent of interest rate cuts which had previously been factored into markets, with a strong earnings season and moderating inflation providing robust levels of support.

That being said, there is an increasing concern that valuations are now beginning to look stretched, particularly among technology stocks, which have been the main driver of the rally through their exposure to the burgeoning euphoria over AI.

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As such, the next test of investors’ mettle later in the week comes in the form of the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation. A hotter-than-expected number could well put the cat among the pigeons, as was the case recently when a strong CPI number sparked a sell-off in equities. The latest reading will also give some clues as to whether inflation is remaining sticky as some had feared, especially given a service sector release on Friday which revealed that input prices had risen to a high not seen in almost a year. The PCE is expected to rise by 0.4%, as compared to 0.2% the previous month, but any notable deviation from the consensus will likely be market moving in either direction.

With the earnings season now tailing off and economic data otherwise fairly light this week, the PCE reading could take on added significance. In the meantime, the main indices remain comfortably ahead in the year to date, with the Dow Jones having added 3.8%, the S&P500 6.7% and the Nasdaq 6.6%.

Asian markets were relatively flat for the most part overnight, although Japan’s Nikkei 225 briefly touched another record high in early trading following a holiday on Friday. The weakness of the yen and the apparent lack of viable alternatives in the region have led to a surge of buying interest, although the main Chinese stocks have shown some signs of recovery of late, mainly predicated on hopes of more aggressive stimulus from the authorities. The strength of the Nikkei has been achieved despite the country being in technical recession, once more underlining the often-noted difference between the market and the economy.

UK markets mirrored the mixed messages from other global markets in early trade, drifting slightly lower. Bunzl (LSE:BNZL) shares were sharply lower having left its guidance intact rather than reflecting the perceived improvement in the sector, while the announcement of a probe by the Competition & Markets Authority on the housebuilders weighed heavily on the likes of Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV) and Berkeley Group Holdings (The) (LSE:BKG).

Elsewhere, International Consolidated Airlines Group SA (LSE:IAG) and Standard Chartered (LSE:STAN) were the beneficiaries of broker upgrades. The moves leave the FTSE100 and FTSE250 trailing by 0.4% and 2.7% respectively so far this year, while there was a small bounce in the shares of Endeavour Mining (LSE:EDV), which could well prove to be too little too late.

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The latest FTSE100 reshuffle will be announced after the close of play on Wednesday this week, based on prices from the previous day’s close, with any changes becoming effective from 18 March. Based on current levels, the likelihood is for just one switch, with Endeavour Mining being relegated after a difficult period which has seen the share price decline by 25% over the last year, and which saw the forced ousting of the CEO in January.

easyJet (LSE:EZJ) is the most likely candidate to replace Endeavour after a strong run which has resulted in a hike of 34% for the shares in the last three months alone. After having previously been relegated in June 2019 and then regaining its place in December of that year, easyJet fell foul of the ravages of the pandemic as the skies emptied and travellers were forced to stay at home, resulting in a further relegation in June 2020.

More recently, the airlines have seen a noticeable improvement in fortunes as flights return to near-pandemic levels and with the consumer seemingly obstinate in putting a holiday as the top priority despite other pressures on the family budget. In addition, easyJet has seen a true profitable benefit from ancillary revenues which continue to boost revenues, and which include the likes of customer payments for personally allocated seats, baggage and food.