Friday, 7 May 2021

Markets mixed, “vulnerable to significant declines”

Markets were mixed on Thursday.

The S&P 500 rose 0.8 percent and the Nikkei 225 surged 1.8 percent. However, the STOXX Europe 600 fell 0.1 percent.

US stocks rose after a better-than-expected reading on jobless claims. First-time claims for unemployment insurance totalled 498,000 for the week ended 1 May, a pandemic-era low.

“Today’s read is another proof point that we’re one step closer to full economic recovery, sooner than some may have expected,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.

“Given that we expect the economy to grow well above trend this year and next, value stands to benefit,” said Keith Lerner, chief market strategist at Truist.

However, a Federal Reserve report released on Thursday warned that rising asset prices in the stock market and elsewhere pose increasing threats to the financial system.

The report said that “valuations for some assets are elevated relative to historical norms even when using measures that account for Treasury yields” and thus “asset prices may be vulnerable to significant declines should risk appetite fall”.

In an accompanying statement, Fed Governor Lael Brainard said: “The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”

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