Tuesday, 5 March 2019

High stocks prices “a headwind” but “current bounce is far from done”

Markets were mixed on Monday.

The S&P 500 fell 0.4 percent but the STOXX Europe 600 rose 0.2 percent and the Shanghai Composite jumped 1.1 percent.

“I think the market was and is significantly overbought,” said Larry Benedict, CEO of the Opportunistic Trader.

John Vail, chief global strategist at Nikko Asset Management, said that while markets “have firmed on news that the U.S.-China deal is really close”, the gains over the past two months has made high stock prices “a headwind” going forward.

Still, many analysts remain optimistic.

Strategist at JPMorgan Chase & Co wrote in a report released on Monday that “the current market backdrop has similarities to ’15-’16 mid cycle correction episode, and not to the end of the cycle”.

They concluded that “the current bounce is far from done and we believe equities could potentially make new highs for the cycle before the next recession starts”.

Analysts at Deutsche Bank noted that besides the Federal Reserve's dovish turn and hopes of a trade deal between the US and China, there are three other reasons to be bullish on stocks.

“Rising yields should prompt a rotation away from bond funds and into equities,” they said.

“The pace of buyback announcements has picked up again over the last 3 months,” they said.

“The latest global manufacturing PMI suggests that growth in the rest of the world, which had been declining persistently since early 2018 may be bottoming,” the analysts said.

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