By Joyce Yu
Philadelphia, PA–From the Japanese election to Spain’s independence crisis, to Fed Chair speculation, political catalysts continue to influence decisions of investors this week. US stocks markets traded in narrow ranges Monday morning.
One institutional investor is expecting a pause in the record-setting rally as equity prices already reflect earnings growth expectations. Morgan Stanley strategist Michael Wilson points out that companies that miss profit estimates being punished more than companies that beat projections are being rewarded. The equity rally is overbought, he wrote in an analysis on Monday.
“Friday’s session in particular had the feel of a buying climax to us,” Wilson and his colleagues wrote in the report. “We point to a similar pattern on March 1st after President Trump made a well-received first address to Congress. It marked a short term top and preceded a 3 percent drawdown in the S&P 500.”
The Dow Jones industrial average rallied 2% last week and closed at a new record on Friday. The S&P 500 and the Nasdaq also ended the week at all-time highs.
In Japan, investors are cheering as Prime Minister Shinzo Abe won a commanding majority for his party in parliamentary elections on Sunday, expecting more upside of the Japanese economy.
Japan’s benchmark index has more than doubled since Abe came to power in 2012 and implemented his “Abenomics” economic reform program. The reforms, coupled with major action by the country’s central bank, have helped push down the value of the yen. Heavy on exporters that benefit from a cheaper currency, the Nikkei often moves in opposite directions of the Yen.
Over in Europe, Spanish Prime Minister Mariano Rajoy announced on Saturday that he plans to dissolve the Catalan parliament and remove the region’s elected leaders. Catalan leaders insist they will reject any attempt by Madrid to impose direct rule.
Away from politics central banks remain in focus with a pivotal European Central Bank meeting due this week which is expected to announce its stimulus plan for 2018. Brazil, Argentina, Russia and Canada also announce rate decisions in the coming days. For next Fed Chair, Janet Yellen is still in the running for this role after President Donald Trump said at the weekend that he liked her and that he is considering three people for the role.
On individual stocks, General Electric shares were lower after it reported earnings last week that revealed its troubles are deeper than investors initially thought. More earnings coming this week include technology giants Amazon, Microsoft and Twitter; telecommunication firm AT&T, fastfood chain Chipotle and McDonald’s as well as industrial companies Lockheed Martin and Boeing. Energy giants ExxonMobil, Chevron will report on Friday.