Wednesday, 24 May 2017

Markets shrug off Manchester blast amid positive eurozone data

Markets were mostly higher on Tuesday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.2 percent.

However, the FTSE 100 fell 0.2 percent after a bomb explosion in Manchester left more than 20 people dead.

A report on Tuesday showed that the IHS Markit eurozone PMI held a six-year high in May at 56.8 while Germany's flash manufacturing PMI hit a 73-month high of 59.4. Also, Germany's Ifo business climate index rose to 114.6, an all-time high.

Carsten Brzeski, chief economist at ING, wrote that “the entire eurozone economy could become the positive growth surprise of 2017”.

While US flash PMI readings were mixed, Karyn Cavanaugh, senior market strategist at Voya Financial, said that the eurozone data “bodes well for global equities”.

In addition, Raymond James chief investment strategist Jeffrey Saut said that US corporate earnings “are going to continue to surprise on the upside”.

Tuesday, 23 May 2017

Markets mixed as tech sector raises concerns

Markets were mixed on Monday.

The S&P 500 rose 0.5 percent, the Nikkei 225 rose 0.4 percent but the STOXX Europe 600 fell 0.1 percent.

Despite the rebound in the US, some analysts remain concerned about further weakness.

Michael Stanes, investment director at Heartwood Investment Management, wrote in a note on Monday that “we are in the latter part of the market cycle and sentiment is likely to remain vulnerable to pressure points as we move through the year”.

Matt Maley, equity strategist at Miller Tabak, thinks that tech stocks will be key.

Maley wrote that “if they do not play catch-up as we move through the week, it will raise the odds that we'll see more weakness in the stock market before long”.

On the other hand, others think that investors may be putting too much faith in the tech sector.

The Nasdaq Internet index, with a P/E of 61, “is approaching P/E levels that are as spicy as they were in prior ‘big tops’ in stock markets, and at a time where policy is turning less favorable”, BofA wrote in a note to clients.

Morgan Stanley wrote of “concerns that index-level moves have been driven by tech to a large and perhaps unsustainable degree”.

Monday, 22 May 2017

Keep buying the dips

Stock markets experienced a turbulent period last week. The S&P 500 plunged 1.8 percent on Wednesday, and despite recovering on the following two days, ended the week down 0.4 percent.

Some analysts remain sanguine though.

Immediately after the tumble on Wednesday, Terry Simpson, multi-asset investment strategist at the BlackRock Investment Institute, told CNBC: “If we have mini-corrections like today, it could actually be a nice opportunity to put some capital to work.”

Similarly, Nick Colas, chief market strategist at Convergex, thinks that investors should continue to buy the dips in the stock market.

Saturday, 20 May 2017

Stocks continue rebound, tech sector sees big inflows

Markets rose on Friday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.2 percent.

The S&P 500 ended the week down 0.4 percent but analysts remain hopeful that the downside is limited.

“This week political risk has caught up on the market but it’s still unclear whether it has any legs,” wrote Deutsche Bank strategist Jim Reid and research analyst Craig Nicol in a note on Friday.

“U.S. policy uncertainty is arguably greater than at any time since last November’s elections, but that should not entirely cloud what remains a generally supportive growth backdrop for equity markets, especially in the eurozone,” said Ian Williams, an economist and strategist at Peel Hunt.

The Nasdaq Composite rose 0.5 percent on Friday but fell 0.6 percent for the week.

This week's setback for technology stocks comes after a record-breaking run for the sector that has, according to Bank of America Merrill Lynch, seen money moved into the sector at a rate that, if it keeps up, would mark the biggest inflows to the space in 15 years.

Friday, 19 May 2017

US stocks rebound but analysts see rotation to Europe

Markets were mixed on Thursday.

After the US market plunge on Wednesday, the Nikkei 225 fell 1.3 percent and the STOXX Europe 600 fell 0.5 percent.

However, later on Thursday, the S&P 500 rose 0.4 percent.

JP Morgan said in a note that “equities could see further weakness in the short-term” but “fundamentals remain supportive”.

Meanwhile, a CNBC report suggests that a rotation to European stocks makes sense.

“With the U.S. and Brazil beset by political turmoil and Chinese stocks on the downswing, the big trade of 2017 increasingly looks like a rotation to Europe,” the report said.

“The fundamental backdrop continues to support a positive stance on the European market,” said Ronan Carr, European equity strategist at Bank of America Merrill Lynch.

Thursday, 18 May 2017

Markets fall on Trump turmoil

Markets fell sharply on Wednesday.

The MSCI All-Country World Index fell 1.2 percent as the S&P 500 tumbled 1.8 percent, the Nasdaq Composite plunged 2.6 percent and the STOXX Europe 600 fell 1.2 percent.

The US 10-year Treasury yield fell 11 basis points to 2.22 percent. Benchmark yields in France and Germany fell six basis points to 0.83 percent and 0.378 percent respectively.

Analysts attributed the declines to political turmoil in the US centred on President Donald Trump.

“If he’s preoccupied defending himself and if it goes a lot further, then any hope of his legislative agenda coming to the fore is going to be reduced,” John Stopford, head of fixed-income at Investec Asset Management Ltd in London, said.

“What has been setting in over the course of the day is that political uncertainty is something that’s likely going to be with us for a significant amount of time,” said Dennis Debusschere, Evercore ISI’s head of portfolio strategy and quant.

However, some technical analysts think that further declines will be limited.

Katie Stockton, chief technical strategist at BTIG, said that the S&P 500 has an initial support level of 2,340 but thinks that “a decline of that magnitude will be avoided”.

“For the most part we really do see this contained,” said Sameer Samana, global quantitative strategist at Wells Fargo Investment Institute.

On the other hand, Ilya Feygin, managing director and senior strategist at WallachBeth Capital, thinks that if Trump's proposed tax reforms, deregulation and infrastructure spending are cancelled, “this market is going to go down so hard that we haven't seen anything like it in the last few years”.