Out with the old, in with the new

Thursday’s end-of-month US data deluge can quickly be summed up as pretty much in line with expectations, which usually reassures capital markets and seems to do so yesterday. The core personal consumption index rose very modestly above expectations, but not so much that it did not deter those who analysed these things in detail from being dissuaded that US inflation remains on a downward trend. One research house described the rise as just “noise”. Particularly when taken in conjunction with some slightly softer employment data. However, it is worth noting that both 2-year and 5-year break-even inflation expectations have risen recently. At the end of the month, US stocks hit new highs as the optimism for the year ahead is maintained, further driven by technology shares. February has a history of being a tricky month for stocks, not so much this one. As we await the global monthly PMI reports in the coming days, China being the first to release late on Thursday, the Composite number held steady at around 50, encouraging the view that the Chinese economy could see some recovery aided by policy support.

What to conclude as we go into March, I guess firstly, big tech may look optically expensive, but investors continue to see that is where the future lies, so those who own it hang on; those who don’t probably have decided to sit tight and wait for the next retrenchment. It is true that some founders, Bezos and Zuckerberg, have taken some profits recently, selling shares in their prospective companies; they have a lot to take. The US investor has also decided not to worry so much about what’s happening to interest rates whilst the US economy and earnings look resilient. Sentiment looks stretched in America, but it has for a while. The Vix index roughly finished the month where it started, suggesting investors remain confident or complacent. The FTSE 100 still lags behind the world, as many old-world economy companies fail to garner excitement. One can now get just over 4.25% capital gain free on 10-year gilts, thank you very much, further hindering investing in equities. Geopolitical uncertainty remains, but whilst the oil price appears unaffected, so does the investment community.

Now earnings season draws to a close, the focus in March will turn back to central banks and economic data. At present, the market may have gotten itself into a complacent place; weaker data brings forward rate-cut expectations and stronger growth supports earnings. All at a modest pace, though, no shocks are the key.

Out with the old, in with the new is how capitalism is supposed to work and how economies evolve, clearly being demonstrated at present.