From gloomy medieval week back to Renaissance: positive news, finally!
This week brought many positive news and cheered up traders tired of the relative bearishness of the markets. To begin with, Hillary Clinton won the first presidential debate against Donald Trump. Hillary is considered to be good for US stock markets, because she represents additional 4 years of Obama’s presidency which had a rather positive impact on the stock prices and corporate earnings.
Moreover, OPEC has finally agreed to freeze oil production for the first time in 8 years. This piece of news especially surprised traders who hadn’t expected such a positive turn of event, and the market’s risk sentiment considerably improved. Oil prices have risen significantly (by more than 5%) in New York after ministers announced that the group agreed to cut production to a range of 32.5 to 33 million barrels per day. In addition, according to the data released on Thursday, US economic growth in Q2 was revised to the upside from 1.1% to 1.4%.
The S&P 500 closed above its 50-day moving average on Wednesday and managed to recover from monthly drop of 2.1%. Analysts say that there are reasons to believe that stocks will keep rising. Firstly, the spread between dividends and 10-year Treasuries has risen, and there are no signs that they will go into negative territory. This positive tendency is extremely rare, if it continues, the demand for equities will increase significantly. Secondly, this time of a year is a rather favorable for stock markets. The fourth quarter has historically been up 80% of the time during the last 50 years, and 30 to 60 sessions post-elections the market has been up almost 63% of the time since 1928. That’s why we expect the S&P 500 to rise further, despite the fact that it has already reached its historical highs.