Friday, 16 December 2016

Stocks rise as US homebuilder sentiment surges but looking "rich" relative to bonds

Stocks mostly resumed their rally on Thursday.

The S&P 500 rose 0.4 percent while the STOXX Europe 600 rose 0.9 percent.

Kathleen Brooks, research director at City Index, wrote in a note on Thursday that “animal spirits” unleashed by Trump “have won the day”.

However, stocks were also boosted by strong economic data, in particular, the National Association of Home Builders' housing market index surging to 70 in December, the highest since July 2005, from 63 in November.

“The market can withstand more rate hikes as long as the economic growth is underpinning it,” said Quincy Krosby, a market strategist at Prudential Financial.

However, Jonathan Garber at Business Insider noted that bonds are flashing a warning sign for stocks.

Citing analysis by Societe Generale's Cross Asset Allocation team published in a note on November 18, Garber wrote that stocks are now at a level where they are “rich” relative to bonds.

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