S&P 500; US Indexes Fundamental Daily Forecast – Tech Stocks, Momentum Catalysts Behind Rally

U.S. stock indexes are trading slightly higher during the pre-market session. There has been no follow-through to the upside after Monday’s strong rally. The price action reflects the mixed trade in Asia.

Asian indexes were mixed at the end of trading on Tuesday as traders awaited MSCI’s decision on the potential inclusion of Mainland Chinese stocks. Including China A-shares in the MSCI Emerging Markets Index could give Chinese stocks a much needed boost.

Including mainland China would increase the weighting of China stocks in the Emerging Market Index from roughly 26 percent to over 40 percent with full inclusion. Acceptance of mainland China would mark a major move forward for China’s domestic markets and oblige funds all over the world to invest billions in mainland China.

This is news could affect the U.S. markets because the announcement will be release Tuesday afternoon during market trading hours. Adding China to the MSCI Emerging Markets Index could trigger a spike higher in the U.S. stock markets.

Inclusion is not a done deal so investors should be prepared for the announcement.  I do think there is more upside potential than downside risk. After all, MSCI has passed on including mainland China in the last three years.

Keep an eye on this on Tuesday, it could be a market moving event.

Forecast

Unless interrupted by an unexpected event, all major indexes are likely to continue to rally on Tuesday. The current rally is being supported by a relatively low interest rate environment, strong earnings and an optimistic outlook for the economy. Technically, the market is being driven by strong momentum. There is still plenty of cash on the sidelines so investors are coming in on sell-off or corrections, preventing a prolonged move to the downside. This is likely to continue over the near-term until investors become overly concerned about valuation.

There are no major economic reports on Tuesday, but investors will get a chance to react to remarks from Fed officials for a second day.

Before the opening on Monday, New York Fed President Bill Dudley said that consumer inflation should pick up as wages rise along with continuing improvement in the labor market.

Early Tuesday, Federal Reserve Vice Chairman Stanley Fischer said long periods of low interest rates may have contributed to “high and rising” home prices in several countries, cautioning against forgetting the lessons of the 2007-09 housing crisis.

Fischer said, “The world as we know it cannot afford another pair of crises of the magnitude of the Great Recession and the Global Financial Crisis,” but he made no mention of the path forward for monetary policy or the economic outlook in his speech.

Yesterday’s rally was led by a strong recovery in technology stocks that had been beaten lower the last two weeks. We could see further upside action if value-seekers continue to buy technology stocks.

Yesterday’s price action also suggests that investors are betting the low-interest rate environment will continue and that stocks are still the best place for investment capital at this time and into the future.