Markets are still hooked on stimulus, even in the front of a potential resurgence in Coronavirus numbers. If China goes through a second shut down, we could see fears spike so there is still real risks out there that can pull markets back. If we see further shutdowns around the world, we will need to see more stimulus announced to stop markets from falling.
From a sector point of view, Tech has been the strongest in the run back up and continues to be a large contributor to the upward momentum. This has been helping many of our local tech stocks as well. Materials, Healthcare, Consumer Discretionary and Staples, are all trading either at higher than year to date or are at least close to.
The sectors that are generally a little weak both in the US and locally are Energy, Industrials, Financials and Real Estate. These areas continue to lag as they are most effected by shut downs and the current recession. These sectors are likely to continue to lag a little this year but will likely start to outperform in the longer run.
Low earnings sentiment continues to be the theme as we edge closer and closer to US reporting season in July. The market is generally expecting low earnings this year, so we will be looking at reports through a different lens. We will be looking to see if companies will report better or worst than expectation. Reporting season as always can be volatile for individual companies so keep an eye on the reporting dates.
With positive leads from the U.S last night our market is set to open higher, though with flat to red U.S futures it’s putting a dampener on our gains this morning. We should test the key resistance at 6000 today, with little likelihood of breaking through if U.S futures remain flat to red.
The pull backs we have seen recently was just a shallowing out of the uptrend. Therefore, the market should continue to move higher, albeit perhaps by way of the stairs and not the elevator as we have seen over the past month. With reporting season looming over head come July (U.S) and August (AUS) the market may feel more reluctant to make leaps and bounds into such a telling period of time.
US shares pushed firmly higher overnight, helped by positive sentiment around the Fed’s corporate bond buying, optimism around the economic recovery, and strength in overseas equity markets. However, persistently high COVID-19 infections are dampening spirits to some degree, with US cases still rising strongly each day. US economic optimism was helped by the strongest rise in retail sales ever seen, as well as a statement from Fed chair Jerome Powell that the US economy may be bottoming out. There is also talk about an additional $1 trillion USD from the US government for infrastructure based stimulus.
Every major sector closed in the green overnight, with the Oil & Gas, Healthcare sectors the strongest performers, while telecoms and utilities lagged somewhat.