Despite markets looking overheated they continue to push strongly higher. This just shows how forward-looking markets can be. We are seeing a lot of negative economic news out there, but most investors see this as only temporary as things will likely just go back to normal once restrictions are removed.
There is a lot of things to get excited about as the world economy slowly reopens this year; Interest rates are at all time lows, people have been locked up and are going to be very eager to splurge once restrictions are removed, governments of the world are going to spend big to ensure economies get back to growth.
If we lean on history and look at the US markets since the GFC, we saw their markets race ahead of most other world markets. This was following the FED cutting interest rates to zero and introduced QE. Although this year is going to be devastating to the world economy the likelihood of markets and the economy rebounding strongly in the coming years is what is exciting markets as we see record amounts of stimulus measures introduced.
Earnings sentiment for companies remain low, indicating weak reporting is expected for July and August, however, that was priced in with the falls. Because we already expect bad reporting this season, rather than looking for growth we will be looking to see how bad the report is compared to expectations. Then we need to look at forward expectations as a comparable to price action and look at forward PE ratios.
Australian Outlook
With two days of strong leads from the U.S our market is set to have a stellar open, rallying 2-3% to open near 6140. The 6000 resistance level has been clearly broken and now becomes the support level for our market. 6150 is a key resistance, and coincidentally our market is opening around there. Beyond that 6300 is a good target but really, there is potential resistance every 50 points or so from here on. The uptrend has accelerated, and a fitting line can be drawn which can also help keep the market from pulling back too much.
At this stage, the U.S looks like its heading back to all-time highs, but our market still has plenty of room to go. Its hard to say if we will reach it, but it is fair to say you may need the U.S to break through their all-time highs for our market to reach ours. Regardless it doesn’t look like we are stopping and the momentum continues to surprise.
US Markets
US stocks have traded twice since the last Australian session, with each of those days resulting in strong gains. The S&P 500 is now above the level at which it started the year, with many now talking about the all-time high at the next milestone target. This is very surprising given record keepers declared that the US was in an economic recession on the same day. The index has now rallied 47 percent since the intra-day low on March 23 and is less than 5 percent of its all-time high. American stocks were buoyed on Friday by a fantastic jobs report that showed around 2.5 million jobs created; much better than an expectation of 8 million job losses.
- US shares tumble as bond yields soar, XJO to drop - February 22, 2023
- US market drops with hawkish Fed comments - February 17, 2023
- US market grinds higher, XJO to follow - February 16, 2023
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