Shares rebounded this week after a miserable month and a half. here's why

by



[ad_1]

Even a weaker-than-expected job report could derail the sentiment.

If the Dow (UNDUE) Ending Friday in the green, he will also have recorded his first five consecutive winning days since January, according to Refinitiv. With the S & P 500 (SPX) and the Nasdaq (COMP), all three indexes are on the pace of their best week of the year.

It seems that nothing can go wrong for this market right now.

If the economy improves, equities will strengthen. If positive developments emerge from the G20 meeting in Japan at the end of the month, the actions could encourage a resolution of the trade problems. And if that does not happen, an anticipated reduction in interest rates by the Federal Reserve stimulate actions all the same.

So how did we get here?

This week was entirely devoted to the Federal Reserve and the US economy. has provided markets with a much needed break from the ongoing trade war, even if nothing has been resolved in terms of trade, and these risks persist.

A week ago, President Donald Trump threatened to hit Mexican imports of tariffs by June 10, which would have caused a shock wave in the financial markets. On Tuesday, Federal Reserve Chairman Jerome Powell said the central bank would act as appropriate to ensure the continued expansion of the US economy.

Market expectations of lower rates were already increasing before Powell spoke. But his remarks gave investors the certainty that, in case of doubt, the Fed would act to revive growth.

The recovery of the shares took off after this development. Lower interest rates are useful for businesses and therefore beneficial for the stock market.

The report on Friday's jobs has just added fuel to the fire.

Just one A weak "data point" on the labor market should not force the Fed to lower rates earlier, said Charlie Ripley, chief investment strategist at Allianz Investment Management. "But this will catch their attention as the pace of rate cuts increases more and more" investors.

The US economy created only 75,000 new jobs in May, compared to 185,000 in the consensus. The unemployment rate remained unchanged at 3.6%. Average hourly earnings decreased from one year to the next.

"For the Fed, today's report gives more chances to a reduction and supports our view that trade tensions will slow growth enough for the Fed to react in September and December with cuts, "said Bank of America economists, Joseph Song and Michelle Meyer. a research note. They added that a rate cut at this month's monetary policy meeting was probably too early, as the central bank "would probably want to see further evidence of weakness."

The WEC's FedWatch tool estimates the likelihood of a rate cut in July at 88 percent, a significant jump from a few days ago. The probability of a reduction by the end of the year is now 99%.

"It's crazy to have such a high percentage," said David Madden, market analyst at CMC Markets. "You usually see such numbers a few weeks before a political meeting, but not so far away."

But the market seems to be determined by what he wants. The question is simply whether, or maybe when, Powell will keep his promises.

[ad_2]

Source link