The Nasdaq Composite and S&P 500 strike four for four, both indices setting record highs every day of the week so far. Lower than expected CPI figures published on Wednesday constituted the most recent bullish narrative, with the year-on-year inflation and core inflation numbers falling to 3.3% and 3.4% respectively, both ten basis point below consensus. The data lend credence to a cooling off economy, which in turn gives the Federal Reserve the justification necessary to lower rates.
Fed Chair Jerome Powell commented on the figures, admitting that there had been some recent encouraging signs of progress, but still lacked the confidence to act just yet. Moreover, the Fed is now forecasting only one rate cut this year, down from the three initially planned.
A potential problem is brewing under the surface. Despite the impressive performances seen in the S&P 500 and Nasdaq Comp, the fact of the matter is that the growth is almost entirely due to large tech stocks. Apple (AAPL) and Nvidia (NVDA) are both up over 7% this week on the back of AI related promises. The problem is that the number of declining stocks outnumber the advancing ones at a ratio of 2 to 1 on both the Nasdaq and NYSE. A small number of stocks are doing all the heavy lifting, which makes the upward momentum observed recently more fragile than it appears in raw numbers.
It may take a while for markets to fully digest this week’s data publications. There have been a few mixed signals of late, parsing them may take a little more subtlety than usual. That’s the problem with contradicting numbers – they can’t all be correct. The elephant in the room of course is the reliability of the data we’re given in the first place. Many of the metrics we use to gauge what’s going on can undergo significant revisions further down the line.
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