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Data the gurus look at: May can be a great month to invest in global stocks

Data the gurus look at: May can be a great month to invest in global stocks

Main European stock indices closed at record highs on Friday, capping their biggest weekly advance since late January, as risk appetite was bolstered by rising bets of interest rate cuts in the region and a strong earnings season. In U.S.A, Wall Street It also marches at a firm pace.

Dallas Fed President Lorie Logan warned at a Louisiana Bankers Association conference in New Orleans about signs of inflation and the impact on monetary policy. “There are significant upside risks to inflation that concern me, and I think there are also uncertainties about the degree of tightening of monetary policy and whether it is restrictive enough” to bring inflation back to the 2020 target. % set by the US central bank, he said.

“I think it’s too early to think about cutting rates… I think I need to see some of these uncertainties about the path we’re on resolved, and we need to remain very flexible,” Logan said, although He did not directly address whether he believes the Fed might have to raise its benchmark interest rate again from the 5.25%-5.50% range it has maintained since July.

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Many U.S. central bank officials, including Fed Chair Jerome Powell, have signaled that they continue to believe that further rate hikes will not be necessary.

Data released Friday provided an unwelcome jolt in the wrong direction to a metric that Federal Reserve policymakers watch closely. One-year inflation expectations from the University of Michigan survey of consumer confidence rose from 3.2% to 3.5% in May, the highest level since November.

While the one-month pullback may not be significant, if it continues it would challenge the Fed’s current assessment that expectations are “anchored,” and add to arguments made by Logan and some others that rates may not be sufficiently high enough to put an end to the fight against inflation.

The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures price index, rose at an annual rate of 2.7% in March, with little progress in the first three months of the year.

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The University of Michigan data was released after Logan began speaking and did not address it. Anchored expectations are seen by Fed officials as an important sign of their own credibility, and a help in returning inflation to 2%.

What do market analysts see?

“April was a complicated month for equity. After knowing the March inflation data, the market recalibrated its expectations about the evolution of the Federal Reserve’s monetary policy, incorporating the higher for longer view and, therefore, discounting only one rate cut in the year,” they say from PPI and anticipate that May could be a month of rebound for stocks.

And they analyze: “The growing geopolitical tensions in the Middle East further complicated the outlook for equities. In this context, only China’s main stock index (HSI Index) ended the month positively (+7.4%). Meanwhile, the aggregate of world stocks, measured through the MSCI World Index, fell 3.9%.”

PPI provides a positive outlook for investors this month: “The turbulence in the equity markets seems to have lessened. May looks promising as a rebound is observed in almost all stock indices. After Powell’s conference last week, a short-term rate hike was ruled out and the market readjusted its expectations to two lows. In addition, the Fed’s contractionary monetary policy would be beginning to take effect, as the labor market appears to be weakening.

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“We highlight that the United States inflation data for April, which will be published next week, will be key to determining the performance of stocks in the remainder of May. A slowdown in inflation could boost the bull market, while bad data would complicate the picture,” he concludes.

From the IEB stock company comment that “the US stock market seen through the S&P500 remains in a temporary stage of lateralization. It is known that said market tends to spend more time rising or falling than lateralizing, which reinforces the feeling that sooner than later later the market will exit the sideways movement.

“The S&P500 reached an intraday historical maximum at 5,264.90 on March 28 and from there, a combination of adverse news made it correct to the 5,000 area, which coincides with the first Fibonacci retracement and with a gap that the market had stopped towards the end of February. From the point of view of technical analysis, the upward trend remains intact”, says IEB and considers that the curve shows a “buy signal”.

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Ends: Going from the technical reading to the “fundamentals”, with 424 companies that make up the S&P500, last Friday they presented their results for the first quarter, with a percentage of positive surprises of 78%, compatible with the average of the last four quarters “.

Questions

In an essay published earlier this week, Minneapolis Fed President Neel Kashkari also raised the possibility that rates may not be restrictive enough, given the continued strength of the U.S. economy, particularly the housing market.

“I find it difficult to explain the robust economic activity that has persisted,” Kashkari said. “It raises questions about how restrictive the policy really is.”

By contrast, San Francisco Fed President Mary Daly, in an interview recorded Thursday, said the “neutral” interest rate may have risen a little, implying that any given level of the rate policy would affect economic activity less than it would otherwise.

However, he indicated that the solution for the Fed in that case would be to keep its official interest rate at the current level for longer. Even if the neutral rate is higher, “we still have a restrictive policy, which is what we want,” he said. “But it could take longer… to lower inflation.”

Source: Ambito

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