Market snapshot: data stirs the tech bulls once more

US markets ended a strong February in fine fettle, boosted by relief following the latest inflation reading which set the scene for further gains, especially in technology stocks.

The Personal Consumption Expenditures price index is the Federal Reserve’s preferred inflation measure, and revealed the slowest annual increase for almost three years in January. The core monthly increase of 0.4% led to an annual rate of 2.8%, down from a previous 2.9% and excluding food and energy prices. Meanwhile, the headline numbers were both in line with estimates, rising by 0.3% and 2.4% respectively.

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The figures were met with some relief, especially given recent CPI and PPI readings which came in hotter than expected, igniting fears of a reacceleration of inflation. The news provides the potential for an interest rate cut in June to still be on the table, even if at the broadest level there are few signs of a weakening US economy, let alone one which is veering towards recession. The situation therefore remains finely balanced, and the Fed’s previous mantra of “higher for longer” looks increasingly prescient given the current showings from economic data.

Even so, the prospects for easing monetary policy was enough to stir the tech bulls once more, driving the Nasdaq to an all-time closing high and the S&P500 to a new record level.

Any questions on stretched valuations driven by AI euphoria are currently going unheard, and among the strongest gainers in the latest trading session were the likes of Advanced Micro Devices Inc (NASDAQ:AMD), with NVIDIA Corp (NASDAQ:NVDA) closed higher once more. The strong February gains have left each of the main indices at or near record levels, with the Dow Jones having added 3.5% in the year to date, the S&P500 6.8% and the Nasdaq 7.2%.

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The renewed optimism spilled over into Asian markets, propelling the Nikkei in Japan to fresh record highs despite the backdrop of the country being in technical recession. Overseas buying interest has propped up share prices, along with a weaker yen which has boosted prospects for exporters, even though the latest reading on manufacturing activity showed a further decline. This follows earlier data showing softening car manufacturing activity and weakening demand, putting economic releases increasingly under the spotlight and complicating the central bank’s next strategic move.

In China, the recent surge in share prices has been largely driven by a restriction on short selling, with the economy itself also showing ongoing signs of lethargy. The latest data pointed to a patchy and mixed recovery, with manufacturing numbers from different sources suggesting a fine balance between expansion and contraction. The services sector release was slightly more positive, although hopes for further stimulus are at the forefront of investors’ minds given the current state of consumer confidence and demand and a beleaguered real estate sector which is clearly in need of assistance.

UK markets opened on the front foot given the gains being seen elsewhere, with a broad mark-up of gains reflecting some return to tentative buying activity. The more domestically focused FTSE250 was off to a sprightly start, buoyed in part by a 13% hike in the share price of ITV (LSE:ITV), who announced the sale of their stake in BritBox to joint venture partner BBC Studios in a deal which should net the broadcaster £235 million. The proceeds are marked to go towards a share buyback, and the news adds extra spice ahead of ITV’s full-year results next week.

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However, the move still leaves the FTSE250 behind by 2.7% in the year to date, with uneven prospects for the UK economy continuing to be a major headwind. Similarly, the FTSE100 remains in the red, although the stronger open reduces the loss so far this year to 0.7%.

Well-received earnings from Pearson (LSE:PSON) and some buying interest in the telecom sector were early props for the gains, while the banks also attracted some attention as investors sought to buy on weakness given the general performance of the premier index in recent times.