Investors’ insatiable appetite towards risk remains intact as we head towards month-end. Though there is the potential for some profit-taking here and there, the trend is clearly bullish for stocks with several major indices trading near record highs. Sentiment is positive towards equities and other assets that stand to benefit from a rebound in economic growth for several reasons. In key economic regions, lockdown measures continue to ease and travel and tourism is slowly resuming at a crucial time, with the hot summer months just round the corner. On top of this, huge monetary support continues to flood the financial markets. Most policy makers at major central banks have persistently dismissed inflation concerns, with the likes of the Federal Reserve and European Central Bank keeping their asset purchases programmes running at full throttle. Knowing that central banks have their backs, investors have therefore had little reason to turn bearish towards stocks, with momentum-chasing traders happy to buy every short term dip back to support.
Further ahead, if we see more evidence of US jobs improving sharply and inflation heating up, then the Fed may become more vocal about tightening, which could then see the US currency finally catch a sustainable bid, while concerns over valuations and the potential for sooner-than-expected policy tightening from the Fed and other central banks could come back to hurt stocks. But for now, risk is on the menu traders are taking advantage of that momentum as we end another positive month for stocks.
Will the FTSE finally join the global rally?
Although most global indices have surged higher, the FTSE has been held back to some degree in recent times, probably because of the lack of any major tech companies in the index and due to the pound’s strength. In contrast, shares in mainland Europe have been surging as the ECB remains one of the most dovish central banks out there, with its vast stimulus programme. Unsurprising, the German DAX has been one of the strongest European indices as it has repeatedly climbed to new all-time highs in recent times.
But will the FTSE catch up? Well, the index has been coiling inside a tight range in recent days, which means it is potentially gearing up for a big breakout. Given the bullish trend for other indices, I wouldn’t be surprised if it broke out to the upside.
