US markets are leading the charge higher, now only 10.6% away from the all-time high created in February. Locally the XJO is still around 23% away from the all-time high so we are clearly still lagging. This does raise the question whether we are going to play catch up. Switch your chart onto a weekly XJO and it is definitely starting to look like a V shape recovery.
Markets continue to be resilient investors continue to have a sense of security from QE infinity and other Fiscal and monetary policies. In saying that there are still massive risks out there as the full effects of the COVID-19 driven rescission is being masked by government payments and stimulus.
Markets are seeing the light at the end of the tunnel and are being held up by;
- Economies reopening
- 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.
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 the push higher in the U.S overnight, it’s becoming increasingly evident that nothing is strong enough to stand up to the amount of fiscal spending and expansionary monetary policy, yet. One day this may be wrong, but at the moment markets keep trucking higher.
In the short term, we are taking a breather as the market digests the issues across the waters. It hasn’t led to falls just yet, and at this stage it seems unlikely this will change. Though some of the puff has come out of the markets, the trend is still up in the medium term. There does need to be caution when trading this market, and you may need to be more risk adverse compared to 12 months ago, but ultimately our market has 6000 written on it like the SP500 has 3130 written on it.
Until we see something change significantly, the trend is your friend.
US markets pushed strongly higher overnight, their third day of gains in a row. The major S&P 500 index returned to its highest level since March 4, despite plenty of concerns around US-China relations and the social unrest domestically in the US. US stocks instead chose to focus on the virus numbers starting to improve, as well as reports of further stimulus being considered around the world. Oil and Gas, Basic Materials, and Financial stocks did the heavy lifting overnight, while there was less buying in Healthcare and Utilities stocks.