Earnings will continue to lend underlying support to US equities, even as higher rates are expected from the US Federal Reserve early next month.

About 86 companies posted better than expected earnings and revenues in the first quarter of 2018, with earnings rising 20 per cent in the three months to March. Companies such as Facebook, Amazon, Visa, Caterpillar, Coca-Cola, Verizon, Boeing, ExxonMobill are expected to release their first quarter results this week.

“It was the bears who were winning earlier because of the geopolitical climate and the trade sanctions. But with earnings coming in, we have seen bulls coming back to the market,” Nadi Bargouti, head of asset management at Emirates Investment Bank told Gulf News.

The Dow Jones Industrial Average fell 1.04 per cent to 24,407.56 on Friday, after a flat performance last week. The S&P 500 fell 1.07 per cent to 2,664.27 at close on the last trading day.

Rate hike

A possible rate hike on May 2 from the US Federal Reserve won’t spoil the supportive sentiment.

“A 25 basis point rate hike will not be a detriment to the market. Market is already anticipating a few rate hikes this year and it won’t be surprise.

Usually equities soften ahead of a rate hike and then recover after the increase.

“In a rising rate environment you may want to be in banks, insurance companies, technology companies and consumer discretionary, which benefits from a rate hike,” Bargouti said.

Emirates Investment Bank is planning to increasing its exposure to emerging market equities to about 20 per cent from 10 per cent earlier as they tend to benefit from an improved global economic conditions and higher commodity prices. About 8 per cent of the exposure will go into higher dividend yielding equities as a defensive play amid rising rates.

Fears fade

“Fears around trade war or geopolitical concerns have faded very much as the US and North Korea have started high-level talks to de-escalate tensions,” Naeem Aslam, chief market analyst with Think Markets said.

Markets witnessed volatility a few weeks ago on rising geopolitical uncertainty, causing gold, which is considered as a safe haven metal, to gain to its highest level last seen in March.

Gold prices, which gained to a high of $1,356 an ounce in mid-April, closed at $1,333.66, down 0.6 per cent.