Markets continue to push higher against all odds following the current uptrend. Strong buying into riskier assets like Energy, Financials, Industrials and Real Estate sectors continued in the US overnight. Things like Health Care and Staples continue to lag behind.
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.
Despite the uncertain times, markets are seeing the light at the end of the tunnel. 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 seems to be weak through the rest of this year and most of next where it is expected to jump strongly.
With U.S markets trading higher overnight and their futures pushing into the green this morning, our market is set to open higher. We will still need to see strength in U.S futures today to maintain the expected gains.
If we do see a pull back, It might just be a breather and the first key support is the previous top of the channel at roughly 5550 to 5600. We are still trading in an uptrend, and the uptrend line comes in at similar levels to provide additional support. It is less likely we return to trading in the channel unless we see a significant sell off triggered by a significant fundamental catalyst. The next major target for our market is roughly 6000, which is roughly where the 100 day MA comes in.
US markets pushed higher again overnight, as fear around a trade war with China were replaced by optimism around the end of virus related lockdowns. It came as the President of the St Louis branch of the Federal Reserve, James Bullard, said that the American economy may have already bottomed and would likely improve from here. Still investors are worried that US corporate profits won’t justify current share prices and that the recent change in approach from the Chinese with respect to Hong Kong could cause the US to level sanctions or other measures against the Chinese Government. Indeed, overnight US authorities stated that the US could no longer certify Hong Kong’s political autonomy.
Technically, The S&P 500 index rose to a twelve-week high and closed above the key 3,000 index point level. The index had been struggling at the milestone number and seemed to hold it as resistance until the overnight session. A close above this level now clears the index for further gains, with 3,100-3,130 the likely next target. The index is now back around the levels at which it ended 2019, which to be honest, seems incredible given the likely decline in earnings across 2020. No doubt large amounts of stimulus, and particularly the actions of the Federal Reserve, are helping prices push back up. Financial stocks were again the strongest performers overnight, with recent moves in the US government bond yield curve likely helping their rise; every other major sector also rose overnight.