MARKET SNAPSHOT: In The Battle For Control Of The Stock Market, Bulls May Have An Edge
21 May 2017 - 9:15PM
Dow Jones News
By Sue Chang, MarketWatch
'It's a battle of bearish political headlines versus bullish
liquidity'
In a landscape devoid of blockbuster earnings and policy
catalysts, the stock market is likely to remain vulnerable to
political uncertainty, setting the stage for another round of
skirmish between the bulls and the bears.
And while the outcome of this battle has yet to be known, most
analysts believe the optimists have a slight edge.
As Savita Subramanian, equity and quant strategist at Bank of
America Merrill Lynch, sees it, there is room for a 5% to 10% drop
in the market and these big pullbacks typically occur about three
times a year.
Yet, for every reason for stocks to retreat, there are also as
many factors to spur them higher.
Synchronized global growth, continued stimulus around the world,
and upbeat U.S. economic data all support the positive scenario. On
the other hand, concerns about valuation and the aging bull market,
central banks' moves to normalize interest rates, and elevated
leverage tip the scale in favor of pessimists, according to the
strategist.
Jack Ablin, chief investment officer at BMO Private Bank,
stripped down the contest for market control to the bare bones.
"It's a battle of bearish political headlines versus bullish
liquidity where liquidity has the upper hand. Like an IV drip, the
world's central banks, the Fed included, continue to buy financial
assets with printed money," said Ablin. "Over the last 12 month
that figure approached $2 trillion. We'll get bearish when
liquidity dries up."
After weeks of trading in a tight range, the market had a scare
this week when stocks plummeted
(http://www.marketwatch.com/story/us-stock-futures-slide-as-concerns-over-trump-grow-2017-05-17)
on news that President Donald Trump asked then-Federal Bureau of
Investigation Director James Comey to stop an investigation into
Russian meddling into the U.S. election.
See:White House official probed over Russia and president called
Comey 'nutjob'
(http://www.marketwatch.com/story/white-house-official-probed-over-russia-and-president-called-comey-nut-job-reports-say-2017-05-19)
But Tom McClellan, technical analyst and editor of the McClellan
Market Report (https://www.mcoscillator.com/?link=mktw), believes
Wednesday's plunge was a one-off event and noted that a sharp
decline on a day when the S&P 500 closed above its 200-moving
day average usually do not lead to further downside. The large-cap
index finished at 2,357.03, above the 200-moving day average of
2,255.01 on May 17.
In the chart below, he illustrated the market's resilience over
the past months and its tendency to rebound after one-day selloffs,
reiterating his view that stocks will peak next week.
Read:Prominent technician sees stock market top in late May
(http://www.marketwatch.com/story/top-technician-sees-absence-of-fear-leading-to-stock-market-top-in-late-may-2017-05-12)
Meanwhile, political drama is likely to become a familiar
feature in the financial markets as Trump continues to attract
controversy.
"Individual investor sentiment is really slipping right now, and
political friction seems likely to continue for a very long
time--not an ideal situation," said Richard Hastings, a macro
strategist at Seaport Global Securities LLC.
As market observers have noted, this week's turmoil was less
about Trump than what an embattled president will mean for the
pro-business policies that he had pledged to enact.
"Each day we spend on investigations is one less day we are
spending on the policy reform that is built into the expectations
for this market," said Ian Winer, head of equities, Wedbush
Securities.
See:Goldman slashes tax-cut expectation as Trump drama rages
(http://www.marketwatch.com/story/goldman-slashes-tax-cut-expectation-as-trump-drama-rages-2017-05-19)
All major indexes rose on Friday but the S&P 500 and the Dow
Jones Industrial Average fell 0.4% for the week while the Nasdaq
Composite Index logged a weekly drop of 0.6%.
(END) Dow Jones Newswires
May 21, 2017 16:00 ET (20:00 GMT)
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