Monday, 26 October 2015

Stocks rally on central bank boosts

The rally in global stocks continued last week.

The S&P 500 rose 2.1 percent last week, its fourth consecutive weekly gain. The gain brought it within 2.6 percent of its all-time high reached on 21 May.

The STOXX Europe 600 surged 3.9 percent last week, rising for a third consecutive week.

In Asia, the Shanghai Composite Index rose 0.6 percent last week for its third consecutive weekly gain.

The rally in stocks was boosted by central banks last week. On Friday, the People’s Bank of China cut interest rates and banks’ reserve requirements, just a day after the European Central Bank indicated that it would bolster monetary stimulus if needed.

The continuing rally and central back actions have brought optimism back to some analysts.

“Stocks are back,” said Robert Pavlik, chief market strategist at Boston Private Wealth. “We’re back on track as far as a cheap money, quantitative easing, risk-on trade is concerned.”

“There’s likely to be continued policy support from central banks around the world and the headwinds, particularly the slowdown in China’s growth, may be behind us,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds.

Still, some skepticism remains.

Leo Grohowski of BNY Mellon Wealth Management thinks this may just be a relief rally. “My growing concern is the equity market participants here in the U.S. are still too complacent around December and there being a less than a 50-50 chance of a rate liftoff,” he said.

And while China's central bank may have taken action last week to boost monetary stimulus, the action may actually underscore how precarious China's economic situation is.

“If the economy was growing so close to the target, there would be no need for stimulus,” Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, told Bloomberg. “The Chinese government is obviously really worried by what they see and they feel compelled to act.”

“I don’t think this is the start of a new move in Chinese equities higher,” said Ajay Rajadhyaksha, head of macro research at Barclays. The country needs economic “growth numbers to improve sharply, and that does not seem to be happening.”

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