- Price action in the major US equity bourses was somewhat reminiscent of that seen in Wednesday’s session.
- The S&P 500 remained supported above the 3900 level.
- Fundamentals remain broadly positive, with the biggest risk right now seemingly high valuations.
Price action in the major US equity bourses was somewhat reminiscent of that seen in Wednesday’s session; stocks saw some selling pressure in the early session but managed to climb back off lows in the final hours of trade. The S&P 500 closed 0.15% higher, with the bull successfully defending the 3900 level again. The Nasdaq Composite rose 0.31% amid strength in tech stocks, while the Dow was the laggard, closing 0.07% lower.
In terms of the sectors, payment companies performed well amid a flurry of announcements regarding companies like Mastercard and PayPal extending their payments services to cover cryptocurrencies. Chipmakers also faired well amid the ongoing shortage and on the news that the Biden administration is looking into taking action to address the shortage. Energy stocks suffered amid a pullback in crude oil prices.
The outlook for US fiscal stimulus, Fed policy, the path of the pandemic and the path of the US economy all still look rosy. In that sense, the biggest risk investors seemingly have to fear right now is the possibility of a technical correction with equity multiples at historic highs. Strong earnings over the past few weeks have helped ease fears of overvaluation.
Positive fundamentals
The fundamental backdrop remains broadly positive; the Fed is staying dovish, as Fed Chairman Jerome Powell reminded the market in his very dovish speech on Wednesday that focused a lot on weakness in the labour market (weaker than expected weekly jobless claims data released on Thursday will further impress the importance for continued monetary accommodation to the Fed).
Markets still expect more fiscal stimulus from the US Congress (which is distracted at the moment by former US President Donald Trump’s second impeachment trial). US House Speaker and leader of the Democrat Majority in the House Nancy Pelosi reiterated on Thursday that she wants a deal on stimulus done by the end of the month and to be in law by the time unemployment benefits expire on 14 March. Meanwhile, moves are already being made towards securing support in Congress for part 2 of US President Joe Biden’s stimulus promises.
The White House said that a meeting with Senators on an infrastructure investment stimulus package was productive and Senators agreed that the country needs to build invest across urban and rural areas to create jobs and support the economy. (Note that Biden’s stimulus proposals amount to a $1.9T “rescue package” focusing on supporting those in dire need due to the pandemic disruption and then a “recovery package”, the size of which is not yet known.
Meanwhile, it appears as though steps are being taken to mend international relationships that frayed under the Trump administration; the US has indicated that it wants to find a solution to the Boeing/Airbus dispute (a move that will please the EU) and the US has taken the first step in de-escalation by pausing the rotation of tariffs across various EU imports that it was permitted to implement by the WTO amid the ongoing aircraft subsidy dispute (again, a move that will please the EU).
Much has also been made of a call between Biden and Chinese President Xi on Wednesday; the call went pretty much as expected (Biden expressed displeasure with Xi over various gripes the US has with China such as over Taiwan, Hong Kong, the treatment of the Uighurs and Xi urged that the two countries should avoid confrontation) and will not mark a turning point in US policy on China. Nonetheless, state-controlled Chinese press is hailing the call as a positive and this is likely to please equity investors.
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