Tech Titans Propel Market to Record Highs Despite Lingering Inflation Concerns

Debate rages over interest rates as Economic data spurs uncertainty in markets

• Equities are soaring to new highs, driven by tech leaders despite lingering concern about inflation.

• Debate over interest rates has ensued as economic data diverged, and it’s impacting market sentiment.

• Financials are resilient amid economic optimism; sector rotation signals have been observed with rising bond and gold prices.

Equities have climbed to new heights yet again, marking another historic day in the market landscape. The S&P 500 surged by 1.12%, closely followed by the Nasdaq Composite, which boasted a remarkable gain of over 1.5%. Familiar names that have ben stalwarts of the market’s ascent over the past year are driving this upward momentum. Notably, Nvidia (NVDA) and Super Micro Computer (SMCI) saw their shares skyrocket by more than 7%. These gains defied expectations, persisting despite a sobering economic report highlighting the persistent challenge of high inflation.

Yesterday, the consumer price index (CPI) exceeded economists' projections, prompting voices like Chase CEO Jamie Dimon and Citidel CEO Ken Griffin to advocate for caution regarding Federal Reserve interest rate cuts. Their rationale emphasized the importance of avoiding premature rate adjustments, which might necessitate subsequent rate hikes.

Data due for release

Looking ahead, the imminent release of the producer price index (PPI) promises additional insight, with forecasts of a 0.2% month-over-month increase and a 2% year-over-year rise in Core PPI. Additionally, attention will be on February's retail sales figures, anticipated to climb by 0.5%. In the realm of retail, Dollar Tree (DLTR) had a disappointing earnings report, and its bleak outlook contrasted with better-than-expected same-store sales, albeit with a 1.5% decline in average tickets.

Amid the market buzz, notable attention was directed toward Boeing (BA) and several other airline stocks grappling with the repercussions of Boeing's safety concerns. Southwest Airlines (LUV) bore the brunt, suffering a 15% decline in its shares. Concurrently, Boeing itself experienced a 4% dip, accumulating a 29% loss for the year.

Beyond the spotlight of the market titans lies another compelling narrative: the resilience of financial stocks. While individual gains for entities like Goldman Sachs, (GS), JP Morgan (JPM) and Wells Fargo (WFC) may seem modest, the broader financial sector has exhibited remarkable strength. The Select Sectors SPDR Trust Financial Index has surged by 10% this year and an impressive 30% since October.

This buoyancy aligns with the robust economic data and cautionary remarks from industry figures like Dimon and Griffin. As expectations for rate cuts recede, financial stocks stand to benefit from higher interest rates. Should tomorrow's PPI and retail sales reports affirm continued economic vigor, the ascent of financial stocks may well persist.

Bonds and gold

Amid these market dynamics, attention is also drawn to the movements of bonds and gold, signaling potential shifts in sector preferences. Despite the market's euphoria, a closer examination reveals nuances. While indices surged, advancing volume and decliners were surprisingly balanced, suggesting a degree of concentration in yesterday's rally. This concentration risk underscores the importance of vigilance, even in the face of seemingly strong market performances.

Looking ahead, my focus remains on bonds, gold and volatility. With minimal news expected until tomorrow, the path of least resistance appears to be upward. Nonetheless, adherence to investment plans and long-term objectives remains paramount in navigating the dynamic landscape of the financial markets.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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