Investors clicked their glasses in jubilation as the US market rebound, NASDAQ and S&P 500 both gained more that 4% and 3% respectively on Friday. Oil prices gained, bond yields fell, but in totality it signifies a day of “risk-on”. So what are the factors responsible for this market rebound?
After a grimy Christmas period, on Friday the US stock markets received a wave of bright news from the US employment report. Before this employment report, majority of the traders were beginning to think that the US economy is heading for a recession.
The increment in the employment reports dispelled the fears of recession in the US economy. It showed that the US economy is on the rise and not the opposite experienced in a case of recession.
The employment report showed that 312,000 new staff were hired as against the anticipated 177,000, so the reported figure was a boom as against the doom expected. In addition, the figures for the previous month were revised higher than the initial figure.
Not only did the number of people joining the workforce go up but wages also rise by 3.2% which is the highest annual rate experience since 2009. The report defied all economic data released before the report.
In most cases, this report presents a remarkable dilemma for the US stock market. This type of report triggers the Federal Reserve to increase interest rate. The report however offset two factors. The first is that this report helps to ease the mind of traders who are more afraid of recession than the Federal Reserve.
The second is on the statement of Jerome Powell who stressed that the Federal Reserve would be patient in 2019 because they were fully aware of the jittery nature of the market. He however added that when a quantitative tightening (QT) approach is required the Federal Reserve will do the needful.
The factor that the economy is getting stronger and the Federal Reserve is embracing a cautionary cuddlier approach is a wonderful combination of events which any investor will jump at.
Wage increment and the reported back-track in the price of oil (although might reverse if there is a continued state of risk-on) leads to increase in the rate at which Americans spend money on consumption.
Apart from the employment reports that dispelled the fears of recession in the US economy, the fact that China has decided to pump out money again is also a factor that contributed to the rebound experienced in the US stock market.
One of the major factors that contributed to the traders’ jittery approach to the market last year was the decline in the economic growth in China which affected the rate at which money was spent in the retail sector of the economy and the shrinking of the manufacturing sector to its lowest point since 2016 in December. This also includes the downward trend of the Australian dollar.
Another cheering news that gladdened the hearts of investors is the renewed trade talks between China and the United States with different optimistic comments that means that there is a positive prospect to expect from the trade talks.
Although China is embarking on a monetary policy tighten process to diffuse the time-bomb in its financial system, they appeared to be systematically and calculatively stimulating their economy. They are embarking on their age-long strategy whenever there is a slow growth in the economy by spending money on their railway system. According to Financial Times, $125 billion worth of railway projects was approved last December.
The fact that China was increased their spending and the US Federal reserve is embracing a cautionary cuddlier approach to interest rate has resulted to the rebound in the US stock market.
How does this market rebound affect your portfolio? Will this loosen approach by China continue? Is this the time to jump into the market head-on? Will Federal Reserve continue to embracing this cautionary cuddlier approach to interest rate? So how does this affect your investment in the stock market?
Well, there is a need to take a disciplined approach to the market; there is no need to change your approach with this upward trend. Just stick to your plans; going head-on too hasty into the market can lead to loss of money. The best bet is to stick the assets with good value and maintain a watchlist with buying target and spend more time in researching on assets before investing.
