By Joyce Yu
Philadelphia, PA–The S&P 500 gained 0.1% and hit a closing high on Thursday as the US President Trump’s tax plan fueled market sentiment. The Dow Jones industrial average and Nasdaq were flat yesterday.
The Wall Street opened mixed this morning and traded in narrow ranges.
Over in Europe, major markets were mostly higher, and Asian stock markets ended the week with small gains.
Global stocks are set for the longest quarterly run of gains since 1997, but market sentiment remains upbeat. The average equity exposure in portfolios is at the highest in almost two years, according to a Reuters poll.
The poll showed investors raising their overall equity allocation to 47.9 percent, a near two-year high, while cutting bond holdings to 39.8 percent, the lowest level since April.
The MSCI’s world index has been trending upwards for 11 straight months, and up 15% year-to-date despite expectation of more rate hike and tensions between the United States and North Korea.
“Despite some signs of weakness in the global economy in recent weeks, it still appears to be growing above market expectations,” the Reuters quoted Peter Lowman, chief investment officer at UK-based wealth manager Investment Quorum.
He added, “Excluding any unforeseen geopolitical confrontations, this should be a good environment for global equities, given that we appear to be in a Goldilocks economy.”
Other investors, however, expressed concerns about complacency even as the Fed and the European Central Bank look to wind down their asset buying programs.
Nadege Dufosse, head of asset allocation at Candriam, said this tightening bias would test the resilience of equity markets.
“In particular, the resilience of European equity markets in the context of a stronger euro will be tested,” she told the Reuters.
Europe’s latest data confirmed the region’s economic recovery with German unemployment falling to a record low in September which bolstered European Central Bank’s confidence to roll out plans to reduce asset purchases in coming months. Euro-zone inflation marginally fell short of estimates but British data showed the county’s consumers are in better shape than previously thought.
“What we are seeing now is the potential environment that people were prepared for and equity markets had accelerated to in January — that reflationary trade,” Michael Underhill, chief investment officer at Capital Innovations shared with the Financial Times. “But I do not think you see a wildly speculative flow. It will be more steady and constant.”
Investors will turn to other clues in the final quarter of the year if the US tax plan fails to pass. These include corporate earnings growth, the outlook for technology shares, Federal Reserve policy and escalation in rhetoric between the US and North Korea.
“We continue to focus on the global growth story,” said Bob Browne, chief investment officer at Northern Trust Asset Management. “That fundamental underpinning is what allows the market to ignore noise coming out of Washington and geopolitical risk overseas.”
