After a much-needed dip that brought relief to the markets, US indices are off to new highs again as traders expect good earnings across the corporate world. Indeed, the increase in global vaccinations, coupled with improving hope for an end to the Covid pandemic and higher Oil prices which are powerful indications of renewed demand have all fueled this momentum with more gains expected in the near future. Nonetheless, new variants could potentially pose a serious risk to a hopeful recovery.
While the actual ratios are skewed given the effect of the pandemic, the profits of the S&P 500 rose by 64% according to FactSet, a figure labeled as the highest in more than a decade. It will be difficult to compare with other periods but the magnitude of the number is building expectations of a profitable corporate environment.
The earnings season will be in full gear on Tuesday as JPMorgan Chase reports earnings alongside Goldman Sachs Group. Improving numbers could send US equities higher as banks remain resilient despite challenges.
A closer look at the market reveals that the Dow Jones is trading near record highs and around the 35,000 area while the S&P 500 trades close to 4400 and the Nasdaq around 14900. A look at global markets shows German stocks remaining resilient with the DAX holding near 15700 while the FTSE 100 looks ready for a break above 7200, according to analysts.
The week is heavy with economic releases including CPI data out of the US on Tuesday, Central bank rate decision and statement out of New Zealand on Wednesday followed by BOC rate decision and statement and Crude Oil Inventories. Also on Wednesday, Fed Chairman Powell will be testifying. On Thursday, employment data out of Australia should keep the Asia-Pacific region on edge while at night, Powell testifies again. Friday will see data out of the BOJ and retail sales out of the US.
Given the expected earnings and the busy economic calendar, traders should be cautious as volatility is likely to be elevated throughout the trading sessions.
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