UK inflation back to 2% year over year

The S&P 500 continues to creep higher as Nvidia becomes a more valuable company than Microsoft and the most valuable company in the world. A company that many people would not have even heard of not too many years ago. There are further signs that the US consumer is running out of steam. Last week’s Michigan Consumer Confidence report indicated that US consumers saw little change in sentiment from the previous month as the index fell to a 7-month low. Despite this, inflation expectations changed little. Yesterday, core retail sales that adjusted for vehicle sales contracted by 0.1% last month, and there were downside revisions to the April data, as there are indications consumer credit growth is slowing. One could conclude that the old bad economic news may be good news for the US stock market. Having said all that industrial production in the US came in ahead of expectations.

The sentiment is becoming increasingly polarised towards tech. That’s where the money is flowing. Over the years, dividend aristocrats making the backbone of so many portfolios have been abandoned for technology shares. The performance dividend aristocrats are 20% below that of the broader S&P 500 index in the past year. The Russell 2000 index has changed slightly from where it was a year ago. This would all indicate the broader market is in something of a bear market. Midcaps and dividend aristocrats are where one makes money in bull markets. A bear market is defined as a 20% fall from a previous high. In reality, it’s just when stock prices stagnate and when one strips out a fairly select number of names, it feels like what’s happening in the broader market currently.

According to a Barrons report, the latest Merrill Lynch fund manager survey shows investors are the most bullish they have been in years. Where do they feel most bullish? America, and that means tech. NDR research also highlights the current positive sentiment and points out that many professional and retail investors seem fully invested. The investment community has fully bought into the no or soft landing scenario.

It’s a big day for the UK data-wise as we get a raft of UK inflation data. Year-on-year inflation is now back to the Bank of England’s 2% target. That will indeed give Mr Sunak a little in the way of good news, although the core rate stays above the bank’s target. This may give further scope for Mr Bailey and his band of merry men to cut in July after the election. I think we are now the first of the major developed economies to get inflation back to that benchmark 2%. Not sure how much credit Mr Sunak will get.