The excitement we have seen in the past few days came to a very quick end with the SP500 unable to hold above 3,000. But with the uptrend still intact we expect a pause here to see if there is enough momentum to push through this level. In the US we saw a switch out of things like Gold and Silver, and into risk assets like Energy, Financials, Industrials and Real Estate sectors. Things like Health Care and Staples lagged.
If the markets hold trend, we need to hold the view that it will continue the current path. If the trend breaks, we could see markets give back a good amount of gains from the last two months, so we need to be ready.
We are definitely in uncertain times with many companies and government abandoning growth targets. But the stimulus light at the end of the tunnel continues to shine. Markets are being held up at current levels with-
- Economies are on a reopening path
- Hopes of a vaccine
- Low interest rates with the view they are going lower
- Bond buying, to keep the Credit markets ticking along
- Increased unemployment benefits and programs to help keep staff employed that would have lost their jobs otherwise
- Hints of further stimulus on the way.
If our government and the US continues down the current path of stimulus, we expect markets to remain fairly steady. The true test for the market will come once we hit a point of stimulus being unwound.
Earnings sentiment is still exceptionally low, with many analysts downgrading expectations. If sentiment continues to increase around lockdown relief, we could see a shift here later in the year. But for now, things are expected to be negative through the July – August reporting seasons. Future prediction on growth at this stage seem to be weak through the rest of this year and most of next where it is expected to jump strongly.
Yesterday our market priced in the strong expected rally from U.S markets we saw last night, indicated by their futures over the past couple of days. With it priced in now, we look to their futures once more to get a lead on where our market is going today.
With weak U.S futures not giving us clear direction this morning, and such a strong anticipatory move yesterday, our market at this stage is set to open flat to lower. It makes sense as we take a breather and wait for further instruction.
Overnight US shares pushed strongly higher, after coming out of a public holiday closure. While they were away, global equity markets did rally, so US shares were playing a bit of catch-up. Gains were a bit muted however, and stocks did fall during intra-day trading. The strongest movers in the session were Financials, Oil & Gas, and Basic Materials stocks; while Healthcare and Technology stocks, the strongest performers over recent times, were the worst performers overnight.
Trade and political tensions between the US and China dominated headlines, with the US announcing sanctions against Chinese businesses and Government officials over the latest Hong Kong security bill.