KUALA LUMPUR, March 14 (Bernama) -- The FTSE Bursa Malaysia KLCI (FBM KLCI) ended the week slightly higher, in line with regional indices despite the weaker performance on Wall Street overnight. At 5 pm, the FBM KLCI rose 2.12 points or 0.14 per cent to 1,512.15 from Thursday’s close of 1,510.03. The market bellwether opened 10.08 points lower at 1,499.95, and moved between 1,493.29 and 1,516.25 throughout the day. On the broader market, gainers outpaced losers with 680 to 292, while 437 counters were unchanged, 1,009 untraded, and 13 suspended. Turnover was marginally lower at 3.24 billion units worth RM2.5 billion from 3.25 billion units worth RM2.90 billion on Thursday.
The February Consumer Price Index (CPI) data released this Wednesday showed inflation cooling more than expected, offering a brief respite for markets that have been rattled by trade tensions and valuation concerns. Here's an overview of how the data affected the market:
Key CPI Data Highlights:
- Headline CPI increased by 0.2% month-over-month, below the 0.3% economists anticipated.
- Core CPI (excluding food and energy) rose 0.3%, also missing forecasts.
- On an annual basis, headline inflation eased to 2.8% from 3.0% in January, indicating that price pressures might be stabilizing.
Market Response:
- The Nasdaq Composite jumped over 1%, while the S&P 500 added 0.8% in early trading.
- The Dow Jones Industrial Average, however, closed down 0.2%, weighed down by trade-exposed industrials.
- 10-year Treasury yields fell by 3 basis points to 4.25%, reflecting a softer inflation outlook.
Valuation Concerns Amid Relief:
Despite the positive CPI data, the market remains expensive:
- The S&P 500's forward P/E ratio is at 20, above its decade-long average of 17.5 (according to FactSet).
- Tech giants like Tesla (P/E of 90) and Amazon (P/E of 27) have even richer valuations, making the market look overvalued.
- The Nasdaq 100, home to the largest tech companies, trades at a forward P/E of 28, well above the broader market.
Uncertainty Remains:
- Goldman Sachs cautions that U.S. stocks are fragile and volatile, with high uncertainty. Although lower CPI levels may provide short-term support for stocks, these rebounds are likely to be followed by sell-offs.
- Trade tensions remain a key wild card:
- The EU has imposed duties on $28 billion of U.S. exports, while Canada targets an additional $20 billionin retaliation against President Trump's tariff threats. These tariffs could reignite inflation, offsetting the CPI’s dovish signal.
- Trump’s corporate tax cuts could potentially boost earnings by 5% for S&P 500 firms. However, the passage of the bill hinges on whether Republicans in the House can pass the tax reform.
Impact on Federal Reserve Policy:
- The February CPI data alleviates some of the pressure on the Federal Reserve for the upcoming meetings. The futures market now places a 97% chance of steady rates, up from 88% before the CPI data, according to CME Group's FedWatch tool. A more dovish Fed stance could support equities.
- However, any inflationary pressures stemming from tariffs could force the Fed into a hawkish pivot, putting a damper on market optimism.
Investor Sentiment and Strategy:
- Investors have started rotating into defensive stocks, such as utilities and healthcare, which are up 5% year-to-date compared to the S&P 500.
- Despite the positive CPI data, the market sentiment may only see a short-term boost. Persistent inflationary pressures and uncertainty from ongoing tariff issues and tax policy changes are likely to keep investors on edge.
Conclusion:
While the February CPI data sparked some hope, it doesn't seem to be a clear "buy the dip" signal. Elevated P/E ratios, along with ongoing trade tensions and uncertainty over tax reforms, suggest that caution remains warranted. For now, the market's volatility and uncertain economic outlook may lead to more sideways movement rather than a strong rebound.
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