Markets needed a pull back, it was interesting to see that the worst of it actually all happened on the Futures market. At close of market yesterday the Dow Futures where down around 900 points. By the time the US session started they opened only 500 points lower. Not long after the market opened the FOMC speakers started and the US markets continue to trade into the green. This was after they announced further bond buying in individual corporate bonds under its Secondary Market Corporate Credit Facility.
Not much has really changed, well timed stimulus announcements continue to drive positive sentiment in markets. The recession at this stage, is looking vastly different than others. Although the virus has been devastating to the economy and our way of life; not to mention the loss of life. It has given many governments a reason to spend and stimulate to soften the blow. A bi-product of that is the US market going to its highest point since QE1 was announced.
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 strong leads both from the U.S session last night and their futures this morning, our market is set to open strongly higher. The bounce from their uptrend line gives hope that the recent falls are a strengthening of the up-trend, which in turn provides confidence that the rebound in markets leads to higher index movements.
The target for our market is now 6000 with our market set to open at around 5880 at time of writing. With renewed confidence we may go on to test this level in the next couple of days. Be mindful though that July approaches and with it U.S reporting season territory. It would be hard to suggest that markets are going to experience a similar rally to what we have seen over the past couple of months leading into it. Instead, we may see subdued movement and/or whippy trading as bulls and bears throw down their expectations for the coming month.
When we left the office yesterday, US futures were suggesting a bloodbath in US stocks overnight. However, US markets finished strongly higher, notionally after the Fed indicated they would buy a board portfolio of individual corporate bonds; something we already knew was likely. The other reason for such a strong reversal I suspect, is that many other markets did not follow US stocks down to the same degree, causing shorting traders to lose confidence and reverse their positions. Almost every major sector closed in the green, with just the Telecom sector finishing lower. The strongest performers were the Technology and Financials stocks.