Markets bounce back after soft start to the week, inflation trends and a review of February's performance.
Overview
After dipping earlier in the week the U.S. markets then rallied after the latest Personal Consumption Expenditure (PCE) inflation data, which was in line with expectations and received well by a sanguine market. After the Australian close the US market hit new highs and Nvidia's market cap pushed above USD 2 trillion.
There were some signs that the market might be sniffing out a potential cyclical recovery, with small caps, Japan, Europe, and Australia all also up around 1-2% ahead o the US market. Emerging markets and the UK were flat for the week. Bond markets were also fairly calm with a small dip in U.S. long term rates while Australian rates fell slightly as well.
U.S. Inflation Data
The monthly PCE U.S. CPI inflation print could actually be taken both ways as the so-called Super Core (ex food, energy and housing) measure was actually up strongly and has been annualising closer to 4% than the desired 2% in recent months. The PCE data offers wider coverage of actual consumer spending compared to CPI and is watched more closely by the Fed for that reason. However, this print is seen too be driven by one-off occurrences relating to tax and financial products. That said, most other services components seem stuck around 0.4% per month (over 4% annually), exceeding the Fed's 2% target. The focus remains on services and wage inflation and there has been upwards pressure on both although disposable income is potentially waning.
February and Year to Date Market Performance
In February, Japan led gains with a rise of 10%. There were also broad gains of 5-6% seen in Europe, the NASDAQ, and S&P 500. Emerging markets posted gains as well. However, Australia and the UK were flat for the month as commodity-driven economies. For the average 70/30 diversified portfolio, this likely translated into a moderate gain of around 2% in February, continuing the overall trend from 2023.
Looking at year-to-date performance in 2024 so far, the picture is similar. Japan is up around 15-20%, while Europe, the NASDAQ, and S&P 500 have all gained nearly 10%. Conservative multi-asset funds are up a couple of percent, while more aggressive 100% equity growth funds have returned between 4-5%. Within equities, growth investing strategies have outperformed value in 2024, with value up only slightly versus robust gains for growth funds. So the growth-oriented rally has persisted into the new year.
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