Fresh upside surprises are the only factors that could cause the market to rise above its present level. Our financial advisor's at Gerhard Moser see the happening of these four events could mean potential new gains despite the present economic uncertainty.
For instance, U.S. stocks have enjoyed one of their best first halves in 50 years, and the S&P 500 is not showing signs of slowing down, boosted by the belief that this economic downturn is nearing its end, as central banks across the world (including the American Federal Reserve) begin to make moves to trade tensions ease and stimulate growth. It will seem as though bullish investors are preparing to enjoy a second half boosted by earnings rebound.
All the expected positives have already been priced into stocks at this point, so the market will need something new if it is to enjoy further gains. Like Gerhards Mosers financial analysis, I’ve tried to maintain some level of caution over the last couple of months. Here are some potential catalysts that could boost the U.S. stock market and the attendant reasons why investors should approach this exuberant narrative with utmost care:
Fed half percent point rate
There could be a Fed half percent point rate cut on the 31st of July: According to future markets, there is a 67% likelihood of Fed cut rates at that percentage – most rate cuts will be in quarter-percentage-point increments- by the end of its meeting at month’s end. There might be some upside if the Fed decides to cut by that much since the 50 basis point cut is not completely baked in – especially if central banks across the world also provide additional stimulus while this is going on (central banks use cutting rates to stimulate their domestic economies since individuals and companies are encouraged to spend and borrow more by lower rates). The happening of the 50 basis point cut is not certain however, since economic reports like employment gains, regional manufacturing surveys and retail sales, have managed to turn up in the previous weeks, potentially hiding the need for major rate cuts.
U.S consumer spending
There could be a boost in U.S. consumer spending: According to some bullish investors, U.S. consumers are set to spend more in the months ahead, boosting much needed growth. Indeed, there have been recent improvements in key readings of the strength of consumer spending, like employment and retail sales. Consumer sentiments have maintained its positivity. These are however, possible lagging economic indicators.
Substantial USD Decline
The U.S. dollar could experience substantial decline: U.S. exports become cheaper when the dollar is weaker against major currencies (which increases the interest of foreign buyers), while increasing the cost of imports. These dynamics are good for the U.S. corporate earnings. But then again, the reverse might be the case and this could end up benefiting non-U.S. stocks more when you consider the fact that the strong dollar and the U.S. stocks have enjoyed some kind of virtuously supportive dynamic for some years now.
More individual investors
We could experience more individual investors in the stock market: A lot of retail investors preferred to participate from the sidelines when the rally was on. There could be more market gains if they decide to buy in now due to chasing performance. We are yet to experience such level of market exuberance. However, you should note that the market direction has not really felt the effect of retail investors of recent. Corporate stock buybacks have had bigger effects and could be curtailed by possible profit slumps.
Therefore, investors should put the likely occurrence of such catalysts into consideration, considering the fact that the positives – economic soft landing, rate cut and good news on trade - have already being priced into the markets in our opinion.
Like the Portfolio managers at Gerhard Moser Investment Capital Holdings, I’m quite certain that these four factors will likely be positive in the coming year. However, the S & P might not end up being the biggest beneficiary if they ever come to pass. This is why I’ll advise all investors worldwide to employ active stock selection when choosing from the value-style, cyclical, small-to-midcap and non-U.S. equities which I feel would be the major beneficiaries of a strong economic growth.
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