Stocks in Asia are set for a mixed open following a sluggish US session, with investors split on whether the market can sustain this month’s rally given economic crosscurrents.
Equity futures point to a modest gain in Australia, a drop in Japan and a steady Hong Kong open. In the US session, the S&P 500 briefly hit 5,200 before paring its advance while Treasury 10-year yields fell after solid demand in a sale of three-year notes. US futures were little changed in early Asia trading, Australian bond yields declined and oil was steady.
The Bloomberg dollar index rose the most in a week on Tuesday, while the Japanese yen underperformed peers amid doubts over further intervention.
Stocks have been trying to make a comeback after April’s rout, with gains fuelled by prospects of Federal Reserve rate cuts and solid earnings. While the S&P 500 recently broke above a key technical level, Matt Maley at Miller Tabak + Co. says he’d like to see a bit more upside follow-through to confirm the “break.”
“We continue to see a path higher for stock prices as long as fundamental conditions remain stable and profit growth remains on a positive trend,” said Anthony Saglimbene at Ameriprise. “Elevated interest rates and sticky inflation, along with the Fed holding monetary policy at restrictive levels for longer than most expected at the start of the year, introduce some added risks.”
Despite resilient consumption and artificial-intelligence optimism, US economic growth slid last quarter while inflation stayed high. Fed Bank of Minneapolis President Neel Kashkari said Tuesday it’s likely the central bank will keep rates where they are “for an extended period of time” until officials are certain prices are on track to their target.
Treasury 10-year yields fell three basis points to 4.45%. A $58 billion sale of three-year notes garnered solid demand. This week’s offerings also include $42 billion of 10-year notes Wednesday and $25 billion of 30-year bonds Thursday.
Economists at Morgan Stanley changed their forecast for the timing of the Fed’s first cut to September from July because of “lack of progress” on inflation.
US growth momentum is resilient, but likely slowing, and that could weigh on equities, which have decoupled from the Fed by assuming that an acceleration in growth was lying ahead, a JPMorgan team led by Mislav Matejka wrote.
The biggest buyers of US equities, American companies, are back in the market and ready to drive the next leg of the stock rally, according to Goldman. About a sixth of the USD934 billion in estimated share repurchases this year are expected get executed in May and June, the firm’s tactical specialist Scott Rubner wrote.
All major Bank of America client groups offloaded US equities last week, quantitative strategists at the firm said Tuesday. Institutional clients, hedge funds and retail investors sold a net $4.6 billion of US stocks in the five-day period ended Friday, a team led by Jill Carey Hall said in a note.
To Solita Marcelli at UBS Global Wealth Management, investors should stay vigilant on a range of economic and geopolitical risks that could send market volatility back up again.
“Investors can mitigate such volatility and keep their portfolios on track by diversifying and balancing across asset classes,” she noted. “We see significant value in quality bonds in a portfolio context, given their potential for outsized returns if there is a growth misstep, or heightened fears about geopolitical uncertainty.” – Bloomberg
