Summary:

• Core PCE price index M/M: +0.2% vs +0.2% exp and 0.1% prior
• US500 at record level for Wall Street open
• Less value in US stocks than at peak of .com bubble

The US dollar has had a torrid time of it of late, sliding across the board after last year’s depreciation. The week ahead contains a few major events (Trump’s state of the Union address, Fed, ISM manufacturing and NFP) that could offer the buck a chance to recover but before them we’ve had some 2nd tier data this afternoon  which could be seen as mildly positive for the USD. 

The Core PCE price index for December rose to +0.2% M/M as expected, from 0.1% last time out. This inflation metric is often quoted by the Fed when discussing price pressures and the increase may alleviate some of the concerns that inflation remains stubbornly below the 2% mandate. As the same time as the PCE data there was also personal spending and personal income figures from the US with the latter missing forecasts and the former beating. Whilst personal spending did drop to +0.4% M/M (+0.5% exp) there was an upwards revision to the prior reading to +0.8% and in light of this it is less of a disappointment. 

 The USD is rising against most of its peers today with only a couple cryptos enjoying a better day. Source: xStation

The US500 enjoyed a good session on Friday and the market could be set for further gains today. The market is set to be at its highest ever level for the cash open at 2:30PM (GMT) after ending last week at yet another all-time high. Friday saw the market trade around the 2850 ahead of the opening bell on Wall Street, but as soon as the US session began, price made a strong thrust higher. After breaking above 2856 – the previous record peak – the market took off on a classic Friday afternoon rip ending the day at 2874. Overnight the market has already taken out this peak to make a new intra-day record of 2880.

 The US500 made a strong move higher on Friday and is set to trade at a record opening level when the Wall Street bell rings out. Source: xStation

Given the strong increases seen in recent years, there has been a further stretching of valuation metrics for the S&P500 (US500 on xStation), with P/E ratios hitting levels not seen since the height of the .com bubble. The index has an average valuation of around 24 times projected earnings, which is similar to that seen around the turn of the millennium.

A closer look at forward P/Es reveals that in fact there are less “cheap” stocks now that in March 2000 – the height of the .com bubble. At this point around 90% of US market cap was trading at or below the broader index valuation of 24, meaning that whilst some stocks were very “expensive” according to this metric, there were still many deemed “cheap” with more than a third of the market have a forward P/E of 11 or less.   The situation at present is quite different with less than 10% of stocks trading with a forward P/E multiple below 11.

 

There are far less “cheap” US stocks at present compared to back in March 2000 – the height of the .com bubble. Source: Bloomberg