After the rebound in stocks at the end of May, June to witness moderate gains

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As stocks enter the often weak month of June, stocks end May with mixed performance.
Image Credit: AFP

Dubai: As all major US stock indices and most other stock indexes rallied at the end of May, investors will be keeping an eye out for other key economic figures to be released in different regions of the world.

This week will bring the May Unemployment Report in the United States, several key reports on global manufacturing and mortgage applications in the United States for May. Recent strong economic data in the United States, the world’s largest economy and consumer of oil, has boosted risk appetite.

According to Dow Jones, economists expect Friday’s jobs report to show about 674,000 jobs created in May, after the disappointing 266,000 jobs added in April – a quarter of what economists expected .

June to finish higher?

As stocks enter the often weak month of June, stocks end May with mixed performance. Large-cap indices like the S&P 500 and the Dow posted gains.

The key US stock market benchmark, the S&P, rose half a percent and the Dow Jones rose 1.9 percent. The small-cap Russell 2000 was flat, up 0.1%, and the technology-intensive Nasdaq fell 1.5%.

Historically, June has not been a particularly positive month for stocks. Research shows that over the past 50 years, the Dow Jones Index gained just 0.1% in June and ended up rising for almost half of the month.

But over the past 20 years, June has been much weaker, gaining only 40% of the time. June’s performance is tied with September as the worst month of the year, with the Dow Jones falling on average 0.7 percent.

US Fed meets in June

As for the month of June, the US Federal Reserve is scheduled to meet June 15-16, and market analysts are already predicting it will be the most important event of the month.

Fed officials stressed that they would keep politics easy while watching for signs that the world’s largest economy is definitely on the rebound path, while assessing that higher inflation readings are temporary, since the data is compared to a weak period last year.

Analysts see for the stock markets what is critical is whether the Fed starts to believe that inflation is higher than expected or that the economy is strengthening enough to grow without as much monetary support.

Change of position of the Fed?

Fed officials have said they will consider discussing a tightening of quantitative easing if they see any signs of improvement, which would be a first step towards interest rate hikes, which are not expected. not be expected until at least 2023. If inflation gets too high, the next step is to increase interest. rates.

Analysts further believe that the prospect of higher interest rates will make stock investors nervous, as it would lead to higher costs for companies and investors could potentially choose higher yielding bond investments over stocks.

U.S. stocks were poised to make further gains next week after President Joe Biden later sought $ 6 trillion in federal spending for fiscal 2022 in budget proposals.

A Reuters poll of around 300 analysts this week showed most saw global stocks continue to rise this year on strong economic recovery and earnings, although any serious acceleration in inflation would dampen enthusiasm. .

European equities on the rise

European stocks hit a new high on Friday as they opened in London, Frankfurt and Paris. Tokyo had jumped more than 2% overnight and the MSCI World Index of 50 countries was now almost 90% above its COVID lows.

European stocks hit an all-time high on Friday as financial stocks exposed to the UK gained following a hawkish comment from a Bank of England official, with the prospect of increased US tax spending bolstering the market sentiment.

The pan-European STOXX 600 index rose 0.6 percent to a record high of 448.98 points and added 1 percent this week. The European-only STOXX index and the blue-chip European index added about 0.7 percent each, trading just below multi-year highs.

Banks boost Europe’s earnings

Bank stocks rose 0.4 percent to a 15-month high, following higher euro area bond yields. UK lenders, including HSBC, led the gains after a Bank of England policymaker suggested an earlier-than-expected hike in lending rates.

Gains in UK-exposed stocks supported the insurance and financials sectors, which were the best-performing sectors of the day.

Optimism over economic growth has supported European actions this year, with several economies loosening their brakes against COVID-19 amid a regular vaccination campaign.

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