US Equity Fundamental Forecast: Bullish
- A strong set of FAANG earnings helped to drive US indices higher, the final report from Alphabet could do the same
- The FTSE 100 looks to the Bank of England and continued Brexit turmoil
- A trade-war breakthrough remains a possibility with US and Chinese officials citing progress in Washington
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Earnings and Trade Wars: Themes for the Dow Jones
US stock markets have enjoyed an incredible run in January as strong earnings, positive progress in US-China trade negotiations and a dovish Fed work in conjunction to push the S&P 500 above 2,700 once again. Apple,Amazon,Microsoft and Facebook were some of the headline earnings last week and the positive sentiment they garnered could provide some buoyancy moving forward. Similarly, the firmly dovish Federal Reserve helped to spark a rally on Wednesday. As February progresses, these themes should provide a consistent tailwind for US indices.
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In the week ahead, Alphabet’s Google on Monday and British Petroleum on Tuesday will be the most notable earnings. Given their size, a large move either direction could drag an entire index lower. Caterpillar was guilty of the last week and the Dow was subsequently outpaced by the S&P 500. That said, a miss may be more readily accepted by the broader market given the Fed’s stance and weakening Dollar.
Dow Jones Price Chart Daily: (January 2018 – February 2019) (Chart 1)
Should the US Dollar continue to weaken, it will provide a lasting tailwind for US equities as exports become more affordable to other nations and corporations reap the rewards. With that in mind, the US Dollar’s performance in the weeks ahead may command increased control over US indices as market participants digest the Fed’s comfortably dovish stance and what it means for the Dollar.
FTSE 100 and the Bank of England
The FTSE 100 will look to something other than Brexit for a change, as the Bank of England is scheduled to announce its decision on the bank’s central interest rate Thursday. The announcement will also be accompanied by the institution’s inflation report which is likely to include the different Brexit-scenario’s impact on the bank’s outlook. Thus, the UK-EU divorce proceedings will once again make their way to the forefront of fundamental themes for the FTSE 100.
FTSE 100 Price Chart: Daily Timeframe (March 2018 – February 2019) (Chart 2)
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact Peter on Twitter at @PeterHanksFX
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