Stocks poised for further gains as momentum builds
Global equity markets are poised to continue their upward march, driven by a powerful mix of bullish sentiment and favorable market dynamics, predicts the CEO of one of the world’s largest independent financial advisory and asset management organizations.
The prediction from Nigel Green of deVere Group comes as Asian equities gained on the heels of a buoyant session on Wall Street, and the stage is set for European stocks to follow suit on Tuesday.
The MSCI ACWI Index, a broad measure that tracks both emerging and developed market equities, is heading for its ninth consecutive day of gains, marking the longest run of increases since December.
This strong performance is underpinned by optimism in the US and a series of factors that look likely to keep the rally going for weeks to come.
“The rally on Wall Street has been nothing short of impressive, with the S&P 500 logging its eighth consecutive day of gains,” says Nigel Green.
“This bullish momentum in the US is being driven by several key factors, including a surge in corporate buybacks, a powerful force that has historically supported stock prices.
“Companies have been aggressively repurchasing their own shares, reducing the supply of stock available in the market and driving prices higher. This trend is expected to continue in the coming weeks, providing a solid foundation for further gains.”
Momentum traders have also jumped on the bandwagon, adding fuel to the rally. These traders, who seek to capitalize on short-term price trends, have been drawn in by the strong upward movement in stocks, further propelling the market higher.
“As more traders and investors pile into the market, the rally gains additional momentum, creating a self-reinforcing cycle of rising prices,” notes the deVere Group CEO.
He continues: “Beyond the technical factors driving the market, there is a growing sense of optimism among investors that the Federal Reserve may soon shift to a more accommodative stance.
“The annual economic symposium in Jackson Hole is taking place this week, where central bankers from around the world gather to discuss monetary policy, and many market participants are betting that the Fed will signal its readiness to start cutting interest rates.
“This anticipation has injected fresh enthusiasm into the market, as lower rates would make equities more attractive relative to bonds and other fixed-income investments.”
The Fed’s potential pivot comes at a time when inflationary pressures have begun to moderate, giving the central bank more room to ease without stoking further price increases.
With inflation showing signs of stabilizing and economic growth remaining resilient, the Fed may feel comfortable taking its foot off the brake and providing additional support to the economy through rate cuts.
This prospect has been warmly received by the market, as lower borrowing costs would not only boost corporate profitability but also make equities more attractive as an asset class.
Nigel Green adds: “Current market positioning and capital flows are also playing a crucial role in sustaining the rally.
“Many investors who were previously cautious have found themselves underinvested in this rising market, leading to a scramble to buy stocks and avoid missing out on further gains.
“This FOMO – fear of missing out – has been a powerful driver of stock prices in recent weeks. At the same time, sellers seem to be running out of steam, with fewer investors willing to bet against the market in the face of such strong momentum.”
The global economic backdrop, while not without its challenges, remains broadly supportive of higher equity prices.
In the US, consumer spending continues to hold up, supported by a strong labor market and rising wages. While there are concerns about a potential slowdown in growth, particularly in Europe and China, these risks are being outweighed by the prospect of monetary easing and the ongoing strength of corporate earnings.
Corporate earnings, in particular, have been a bright spot in this rally. Despite concerns about economic headwinds, many companies have reported better-than-expected results.
As the rally continues, there are, of course, risks that could derail the market’s upward trajectory.
Geopolitical tensions, unexpected economic data, or a shift in central bank policy could all act as potential headwinds.
“However, for now, the bulls are firmly in control, and the path of least resistance appears to be higher,” concludes deVere’s CEO.
