Wall Street Extends Rally Amid Soft Inflation Data

Inflation was in the spotlight this week with the release of January's Personal Consumption Expenditures (PCE) on Thursday, a key inflation gauge for the US Central Bank. As forecasted, the PCE price index, exclusive of both food and energy costs, experienced an increment of 0.4% for the month and 2.8% on an annual basis. Headline PCE, including the volatile food and energy categories, increased 0.3% for the month and 2.4% on a 12-month basis, also in line with expectations. This reading has ignited optimism for a potential reduction in inflation in forthcoming months, which could potentially provide the Federal Reserve with the necessary momentum to administer a first rate cut in June.

The same trend was observed on the old continent. The annual core inflation rate in the Eurozone, excluding volatile food and energy prices to give a better picture of underlying price pressures, eased for the seventh straight month to 3.1% in February, down from January's 3.3%. Even if it came above market forecasts of 2.9%, this is the lowest level seen since March 2022.

Inflation data fueled US stock markets

The Nasdaq closed at a new high of 16,274.94, up 1.74% for the week (+8.42% year-to-date). The S&P 500, meanwhile, gained 0.95% notching its 15th record close of 2024 at 5,137.08 (+7.70% year-to-date). Small cap stocks rebounded strongly with the Russell 2000 up 2.96% week-over-week, bringing its year-to-date performance back into positive territory (+2.43%).

European stock markets were mixed. Germany’s DAX index rose 1.81% for the week (+5.87% YTD), France’s CAC 40 fell by 0.41% (+5.18% YTD) while the UK FTSE slid 0.31% (down 0.66% YTD).

In Asia, Japanese stocks were by far the best performers with the Nikkei 225 rising 2.08% to a record high of 39,910.82 points (+19.26% YTD). Despite official purchasing managers index (PMI) data indicating subdued business activity throughout February, China's Shanghai Composite index managed to climb by 0.74% but continued to significantly underperform most of its peers on an annual basis (+1.75% YTD).  

Among the S&P sectors, information technology posted the strongest weekly performance (+2.51%) and reclaimed its top spot for annual performance, once again buoyed by AI with Nvidia (NVDA) still gaining another 4.39% for the week (+66.15% YTD). The communication services sector edged down 0.31% week-over-week, with Google stocks' dive (GOOG), down 4.96% for the week, as the search giant is facing an embarrassing setback with its Gemini AI blunder. Some social media users have highlighted instances where requests for historic images of individuals resulted in incorrect or unanticipated outcomes.

The healthcare sector was the worst performer of the week (-1.05%) following the cyberattack on HealthUnited’s subsidiary, Change Healthcare, implicating many patient records in the US. The blame for this attack lands at the feet of the infamous ransomware group, ALPHV/BlackCat.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.