Thursday, 30 August 2018

US stocks hit another record amid “positive momentum” but September could “jolt markets”

Markets rose on Wednesday.

The S&P 500 rose 0.6 percent to a fourth consecutive record high, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.2 percent.

A report on Wednesday showed that US second-quarter GDP was revised to show an annualised growth rate of 4.2 percent, slightly better than the initial estimate of 4.1 percent.

Mike Loewengart, vice president of investment strategy at E-Trade Financial Corp, remarked that the GDP report “should serve as another lesson to shelf geopolitical noise and focus on the fundamentals, which are nothing if not strong”.

Meanwhile, some analysts are also becoming more optimistic about trade.

Jeff Kravetz, a regional investment strategist at US Bank Private Wealth Management, said that “a revised Nafta agreement between the U.S., Mexico and Canada may be reached shortly”. He added that that “is giving investors optimism that a U.S.-China trade deal can be worked out in the fall which would remove an obstacle for markets to move higher”.

Katie Stockton, managing partner and founder at Fairlead Strategies, sees “positive momentum” and expects “short-term overbought conditions to be sustained another week or two before a pullback arises”.

However, Patti Domm at CNBC wrote that September is typically a rocky month for stocks and “this year the odds are even greater than normal that something big could jolt markets”.

“If I'm going to rank the risks this fall, trade wars are one. Iran oil sanctions are two, then the European crisis is three,” Ethan Harris, head of global economics at Bank of America Merrill Lynch, was quoted as saying.

David Bianco, Americas CIO at DWS, is expecting a stock sell-off. “We think a 5-9 percent dip is likely this autumn, but worse than that is also a possibility given the uncertainties,” he wrote.

According to Bianco, one risk for the stock market is the Federal Reserve's interest rate hikes, which has caused the US dollar to rise. According to Bianco, the rising US dollar has already caused “an emerging market slowdown”.

Those rate hikes look set to continue, according to David Ader, chief macro strategist at Informa Financial Intelligence. “The odds for a December hike are now higher than they've been,” said Ader.

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