Markets continue to watch for further signs of progress on a US fiscal stimulus package, while vaccination programmes continue, investors markets hope. Image Credit: Bloomberg

Dubai: Investors have plenty to focus on in the week ahead, but analysts view the most important of them all is the US fiscal stimulus package, which is expected to make headway in the coming week.

“Markets continue to watch for further signs of progress on a US fiscal stimulus package, while vaccination programmes continue, giving markets and the global population hope of an eventual return to normality,” noted Chris Beauchamp, chief market analyst at UK-based trading group IG.

“Apart from US and Chinese CPI it is a quieter week for economic data, after a period of central bank releases and US employment numbers.”

The corporate front will remain busy in most key parts of the world. In the UK, AstraZeneca and online retailer Ocado are to release full-year earnings, while in the US, firms across a variety of sectors publish figures, with such names as Cisco, Twitter, Coca-Cola and Disney all set to release their latest earnings.

Investors this week will focus on a hefty fiscal stimulus package worth $1.9 trillion, which if signed into law at its current size, the total federal spending due to the pandemic would be $5.3 trillion.

On the data front, there are just a few reports expected this coming week in the US, but the consumer price index inflation report is an important one to watch on Wednesday. Markets will also be monitoring the impeachment trial of former US President Donald Trump, which begins February 9.

There was higher market uncertainty last week amid a trading frenzy in GameStop Corp shares and other social media favorites.

Although the sentiment was seen more or less calming, investors were now eyeing signs of possible market-related stress that could stem from the unwarranted buying and whether it will weigh on broader stock performance in coming weeks.

For now, US equities appear to be looking past last week’s surge in volatility that led the S&P 500 to its biggest weekly decline since October. Solid earnings, fiscal stimulus expectations and progress in country-wide vaccination efforts are leading stocks back to all-time highs, analysts view.

Moves in the CBOE Volatility Index, known as the market’s fear gauge, also indicate that investors may be more sensitive to market turbulence than usual as the index’s climb was eight to 10 points higher than expected.

With key equity benchmark trading at a near record-high valuation level, the word “bubble” is frequently appearing in analysts’ notes, following sharp gains fueled by unprecedented stimulus measures from central banks and governments fighting the economic impact from the pandemic.

While investors desperate for returns continue to pile into risky assets, a number of strategists warn of a growing disconnect between prices and the economic reality in stock markets worldwide.

The Stoxx Europe 600 Index, which just recorded its best weekly gain since mid-November, currently trades at 17 times forward earnings, above its 10-year average of around 14 times.

In early January, about 90 per cent of Stoxx 600 were trading above their 200-day moving average, the most since 2017, near a level that turned out to be a technical sell signal in the past.