Please see today’s Daily Investment Bulletin from Brooks Macdonald:
What has happened
Yesterday, we saw small pullbacks in the market with the S&P 500 slightly retreating by 0.19% from its record peak, while the yields on 10-year Treasuries edged up for the third consecutive day. Tech sector underperformed, as NASDAQ lost 0.54% and the ‘Magnificent 7’ group fell 0.74%. These movements reflect growing concerns about the sustainability of the recent market rally, particularly considering the S&P 500’s sharp rise of over 25% in less than 100 trading sessions. Additionally, inflation remains a key point of focus, with the US CPI release casting doubt on the Federal Reserve’s ability to implement rate cuts by June.
PPI and retail sales preview
Today’s spotlight will continue to shine on inflation with the release of the US Producer Price Index (PPI) and retail sales data. The PPI is particularly significant as it includes several components that contribute to the Personal Consumption Expenditures (PCE) inflation measure, which the Federal Reserve targets. Although the PCE data will not be available until the end of March, today’s PPI figures will provide a clearer indication of what to expect. Meanwhile, the retail sales report is not anticipated to significantly alter the broader narrative of consumer resilience, despite some recent indications of a cooling labour market that could signal a deceleration in consumption growth.
What does Brooks Macdonald think
Although the tech sector underperformed yesterday, it is still the biggest driver of recent market momentum. Tuesday’s gains in the stock market, post-CPI release, were propelled by tech companies such as Nvidia and Oracle, which reported earnings that surpassed expectations, and Wednesday’s modest pullback was again led by the tech industry. Notably, Tesla’s shares dropped by 4.54%, making it the poorest performer in the S&P 500 year-to-date with a 31.8% decline, surpassing Boeing’s downturn. This increasing divergence within the tech mega-caps is certainly one to watch as it could affect overall investors’ sentiment and the scope of broadening of the current equity market rally.
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Andrew Lloyd DipPFS
14/03/2024