Dubai: The going has been good for the stock markets, and that is expected to continue for now.
The month of January witnessed a strong start to the year, with the Dow Jones Industrial Average registering 6.96 per cent gains for the month. The S&P 500 index gained 6.9 per cent last month, On Friday the Dow Jones index rose a quarter of a per cent to end at 25,063.89.
Many factors such as the headway in the trade negotiations, which had been touted as the number one potential headwind, between the United States and China, along with the dovish Fed, are expected to provide the underlying support to the rally.
“From an equity valuation perspective, the required rate of return has been pulled lower for now, suggesting that further gains may be in the cards. The shift taken by the Fed is of great relief to equity bulls, but other factors need to be resolved in order for the bull market to be sustained,” Hussein Sayed, Chief Market Strategist at FXTM said. The US equities had been on tenterhooks last year, ending the year on a flat note, amid bouts of volatility witnessed during the period. From a hawkish stance, the Federal Reserve now expects to slow the process of tightening rates with analysts expecting two rate hikes instead of three.
Meanwhile, Julius Baer expects the yields on long-duration high quality bonds to resume its upwards trajectory as recession fears dwindle.
“We maintain our call for credit risk over duration risk. In other words, we prefer to add exposure on low-investment-grade bonds and speculative-grade bonds on weakness, rather than to invest in long-duration high-quality bonds,” Markus Allenspach, Head Fixed Income Research, Julius Baer said.
Analysts will continue to look at other factors impacting shares.
“With China out and economic news fairly on the light side, we are watching the stock markets closely for there’s a possibility we could see another motion to the downside given the short-term ‘overbought’ conditions on many indices and as most of the major US companies have reported their numbers. A potential drop in stocks could trigger safe-haven flows into the Japanese yen, Swiss franc and gold,” Fawad Razaqzada, technical analyst at FOREX.com said.
Gold prices are expected to continue its upward momentum. Gold prices have been hovering near their highest level in nine months of $1,326.30 (Dh4,870.51) an ounce hit on Thursday. International spot gold ended down 0.25 per cent to be at $1,317.98. “I don’t think gold prices would go down anytime soon because of soft economic data that would provide make dollar more weak,” Naeem Aslam, chief market analyst with Think Markets said.
Gold prices have gained nearly 3 per cent this year.