The stock market should remain strong as long as the Fed will avoid missteps

Major US stock indexes ended up mixed last week, with gains in the S & P 500 and NASDAQ Composite indices, while the Dow Jones Industrial Average was lagging behind. It was a busy week in terms of corporate profits, the Fed's business and economic data, all of which was factored into price developments at one time or another. However, all these news events generated very little price change.

While all eyes shifted to US large-cap equity indices, international small cap stocks outperformed the pack. This suggests that US markets could be overcooked as the economy has not really missed a beat, while the battered international equities could be more attractive as the global economy may be able to recover. In other words, we could consider an allowance game in which badet managers sell some of the good stuff and transfer money to cheaper stock with upside potential. superior.

There really was not much to shake the currency traders last week, except for potential valuation issues. This raises the question of whether US investors will always be willing to continue the market upward at current price levels or whether they will be more willing to book profits and wait for a downturn in a value zone.

Domestic economic reports last week were mixed but mostly positive. We have seen an increase in consumer confidence and productivity. In addition, the US economy created 263,000 jobs in April and the unemployment rate reached its lowest level in nearly 50 years. Wage growth has been steady but disappointing for some. From a positive point of view, this indicates that the job market can continue to support economic growth without increasing inflation.

The US Federal Reserve has actually become a little less optimistic than expected. The surprise of some market players is that the central bank has reduced the risks of rate hikes last year with their comments. Central bank policymakers reiterated their patient approach to setting rates, but also indicated that due to strong growth in the workforce, the company was not gearing up to reduce its rates. interest rate. This caused a slight sell-off on the weekend by investors who had taken action in a more optimistic Fed.

Nevertheless, stock market investors seem to appreciate the Fed's policy at the moment, as this does not suggest a rate hike on the horizon. Traders would prefer that the central bank's key rates be stable and then increase them. A rate reduction would have been the icing on the cake.

In the future, the stock market should remain healthy since the Fed's policy is accommodating. The economy is also healthy although slow. As long as inflation remains slightly below the Fed's 2% target, policymakers have no choice but to monitor the situation.

While the stimulus measures of the Fed have helped generate strong returns in the stock market, it is clear that this bull market is now supported by improving fundamentals. Recent data show a steady and constant growth of the economy and corporate profits. And in the last six months, we've seen what too fast rate increases can do for the stock market.

In addition, the April employment report highlighted the strength of the labor force. The unemployment rate is low, wages are rising steadily, which helps boost household spending, which essentially keeps the economy together.

At the end of the earnings season, investors will look back and see that corporate earnings exceeded expectations as experts called for less than a month ago the worst season in three years. This is important because, even in a relatively low interest rate environment, earnings growth will remain one of the main drivers of market performance for the rest of the year.

While we remain optimistic about the future growth of the stock market, we are realistic when we say that there are potential pitfalls, including the possibility of a misstep from collapse of US-Chinese trade negotiations, political uncertainty regarding the White House and fallout of Brexit.