Stocks on Track for Weekly Gains as Growth Fears Ease
January 11 2019 - 6:38AM
Dow Jones News
By Riva Gold
European stocks and S&P 500 futures were little changed
Friday, keeping major indexes on track for another week of solid
gains.
The Stoxx Europe 600 edged up 0.1% midday, putting it on course
to end the week 1.7% higher. Oil-and-gas companies led Friday's
advance as Brent crude oil rose 0.6% to $62.07 a barrel.
S&P 500 futures were flat after five straight sessions of
advances and an increase of 2.6% for the index so far this
week.
In Asia, Hong Kong's Hang Seng advanced 0.6% and Japan's Nikkei
rose 1% ahead of a long weekend, with both indexes up just over 4%
this week.
The more positive tone in stock markets has come from
reassurance from the Federal Reserve that it would adjust its pace
of tightening monetary policy if needed, as well as hopes for
progress in U.S.-China trade relations, rising oil prices and signs
the U.S. economy remains healthy.
On Thursday, Federal Reserve Chairman Jerome Powell reiterated
the central bank's flexible outlook on raising rates at an
appearance in Washington, D.C., while Fed Vice Chairman Richard
Clarida separately said low inflation should allow the bank to be
patient with future interest-rate increases.
"You basically have a dovish fed and a still strong economy -- a
positive cocktail for markets," said Thomas Costerg, senior
economist at Pictet Wealth Management.
Investors now see a roughly 18% of one or more additional
interest rate rises by late June, compared with a 45% chance a
month ago, according to fed-fund futures tracked by CME Group.
That has pushed the dollar lower, helping support a rebound in
emerging markets and commodities, and assuaged investors' fears
about the global economy.
Jeroen Blokland, a portfolio manager at Dutch asset manager
Robeco, recently increased exposure to stocks in his portfolios on
the expectation that growth will continue.
He expects volatility to return, however. "Some kind of
turbulence, or phases of elevated volatility, will stay with us
because every time the economy hits a soft spot, there will be this
chatter about a potential recession coming," he said. "I don't
think we'll see the stability we've seen in 2017 and the first part
of 2018, but I do think it will become less volatile than
December."
Meanwhile, investors have become more hopeful about the trade
outlook in recent weeks. Following midlevel trade talks held in
Beijing this week, China and the U.S. are moving ahead with plans
for higher-level talks, with President Xi Jinping's economic-policy
chief scheduled to visit Washington in late January.
Uncertainty around the trade outlook led analysts in December to
rapidly downgrade their forecasts for corporate earnings.
Companies in the S&P 500 are forecast to grow their earnings
by 12% in the fourth quarter of 2018, down from a forecast of 18%
in July, according to FactSet.
"Earnings estimates were slashed in anticipation of trade war,"
said Mike Thompson, head of S&P Investment Advisory
Services.
Now, "It's easier to be optimistic at these [valuation] levels,
and there's more clarity [on the economic and policy outlook]" he
added, noting he expects U.S. earnings to exceed expectations by a
large margin as fourth-quarter results begin to pour in next
week.
The S&P 500 currently trades at 15 times forward earnings,
down from 18.6 a year ago.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
January 11, 2019 06:23 ET (11:23 GMT)
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