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Global Indices Monthly Outlook – May 2017

By:
Colin First
Published: Apr 30, 2017, 15:20 UTC

The major stock markets around the world had a generally volatile month in April as several events had a direct bearing on the stock markets and the way

stocks-sp-500

The major stock markets around the world had a generally volatile month in April as several events had a direct bearing on the stock markets and the way that the investors viewed the risky assets like stocks and this helped to guide the direction in which the stock indexes moved. The main thing of note though, was the fact that most of the stock markets were not able to break through the range highs that were set a few months back, on the back of interest rate hikes from the US. This is a sign that the investors are not yet fully ready to trust the stock market bullishness as yet and it also shows that the investors are not sure whether they can get enough returns by investing at these levels or whether they would be better off to wait for a correction and then investing in them.

US Stock Indices Test Their Highs

The US stock markets managed to hold steady for a large part of the month on the back of some strong economic data from the US. The country continues to throw up some strong data over the last few months and though the FOMC meeting minutes suggested that a few members were getting a bit concerned about the rising stock markets, that failed to have much of an impact on the S&P or the WS30.

SPX Weekly
SPX Weekly

The stock indexes did make a move higher towards the end of the month as there were signs that a new tax plan would be put into place by the end of 2017 and the Treasury Secretary Mnuchin made as much clear. In fact, things progressed very smoothly and quickly that Trump unveiled some major points of the new tax plan where he has promised some major tax cuts for the corporates. This cheered the stock markets which then pushed towards the highs from couple of months back. But then, some doubts began to creep in about whether he would be able to push through the plans or whether it would face the same fate as his healthcare plan which is yet to see the light of day due to internal opposition. This thought has tempered the euphoria somewhat and thats why investors are still a bit sceptical about investing at these levels.

Looking ahead to the coming month, we have the NFP and the FOMC which is likely to determine whether there would be another rate hike in June. If yes, then we could see the stock indexes push through further and we could well be seeing some all time highs being broken. But, with Trump favoring a dovish policy, it remains to be seen whether there is any spanner in the works !

European Stock Indexes Mixed

The European stock indexes, especially the UK 100 and the DAX, had a very volatile month. The UK100 was buoyed during the early part of the month as the UK PM May announced quick polls in June to strengthen her position domestically and also for a strong persona when she sits for Brexit negotiations. This move for a strong mandate found the approval from the investors which helped the UK100 to push through 7400 where it was met with a wall of selling. This forced the index to end the month near its support region at around 7200.

DAX Weekly
DAX Weekly

The DAX also finally managed to break through the strong resistance region at around 12300 and pushed its way through towards 12450 and what was even more important was the fact that it managed to close above 12400 for the month which is a very bullish sign for the coming month. The same can be said about the CAC40 as the French elections results, which showed that the business and economy friendly Macron had won, helped to boost the stock index.

Looking ahead to the coming month, we expect the risk on mode to continue for the first part of the month, helped by the likely victory of Macron in the run off on May 7. But the move of the stock markets for the rest of the month is likely to be determined by the FOMC minutes and the decision of the Fed to raise rates in June. This is likely to have an impact on all the major stock markets and so the FOMC minutes and the NFP for May are likely to be watched very closely.

Asian Stock Indexes Look Towards May

The Asian stock markets had a very bad beginning to the month as they suffered to the global fears surrounding the French elections and the general global risks that arose due to the continuous threats from Trump and his team to North Korea. Japan was most affected by these threats and this was evident in their stock market continuing to post lower lows on almost a daily basis for a major part of the month.

J225 Weekly
J225 Weekly

It was only during the later part of the month that the risks began to die down which helped to remove the pressure on the stock markets and they managed to close the month strongly. This augurs well for the month of May but again, it depends a great deal on the decision of the Fed and the FOMC meeting minutes and what they think about further rate hikes.

 

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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