Risk sentiment remains raw after what has been a relatively choppy trading week. Friday paints a similar picture with Asian benchmark stock indices trading mixed and US equity futures edging into positive territory. Oil prices are persevering above the $40 line, while Gold has moderated just below the psychological $1800 level.
Market performance this week suggests, yet again, that investors have serious misgivings about adding significantly to equities’ Q2 gains, as suspicions over the bullish outlook could be gaining critical mass. The fact that the S&P 500 minis have now been rejected twice around similar levels where it began the year indicates that US stocks need fresh reasons to add to the 47 percent surge since its March 23 trough. For the time being, year-to-date parity could be as good as it gets.
With Wall Street banks so far stockpiling $35 billion in the last quarter for loan-loss provisions, US weekly jobless claims remaining stubbornly high and major corporations warning that tens of thousands of employees could be laid off later this year, perhaps equity bulls are finally taking stock of the potential slip-ups in the US economy’s recovery.
Yet, salvation may be just around the corner.
Further fiscal stimulus could give the bull market fresh legs, with equities having already priced in the current unprecedented monetary policy support. EU leaders are meeting in Brussels today to hold two days of talks over the proposed EUR750 billion recovery fund and a growing consensus at the negotiating table could spur more risk-taking activities over the near-term. Investors are also monitoring what else US Congress has to offer to support the world’s largest economy, with the opening bid for the next stimulus package potentially being tabled as soon as next week. This next round of US fiscal stimulus is estimated to total around $1 trillion.
Should fiscal policymakers disappoint and deny stock bulls the fuel they desire, we could see the rapid erosion of gains from recent months.