Market Overview

S&P 500 Still Looking Good at the Highs

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S&P 500 Still Looking Good at the Highs

Many of the trends that were established in the early parts of the year showed resumptions this week, as corporate earnings and economic data helped push the SPDR S&P 500 Trust ETF (SPY) and the PowerShares DB US Dollar Index Bullish ETF (UUP) lower.  This is largely because positive earnings and stabilizing macro data are positive for risk sentiment.  This means that safe haven assets tend to be sold off while riskier assets (like stocks and high yielding currencies) tend to be picked up while they are still cheap.  For this reason, the current environment is like to see equities remain elevated while precious metals markets could easily revisit their lows for the year in short order.  

 

Gold and Silver

 

All of this means that investors should be looking to avoid assets like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV) in favor of the ETFs that track the most commonly traded stock benchmarks.  Rising consumer confidence and stronger than expected earnings at Apple, Inc. (AAPL) have improved the sentiment outlook, and this could continue to support the relative of stocks vs. precious metals in the coming weeks.  The next major test of whether or not this outlook is likely to be confirmed will come at the end of this week, when the monthly Non Farm Payrolls report with be made public to the investor community.  

 

"Early signs suggest that the April NFP number will come in above estimates,” said James Ramsey, markets analyst at DebtWiz.  “These signs can be seen in rising consumer confidence numbers and in the ADP employment report.”  The ADP numbers are generally used as a precursor for what is later seen in the government payrolls data because the monitor the performance that is seen in the private sector.  And while the numbers are almost never an exact match, the underlying trends tend to be similar.  The 220,000 ADP print was well above the market’s expectation and this bodes well for the numbers that will be released on Friday.  If these expectations are accurate, expect the S&P 500 and the SPY ETF to break to new highs.

 

Oil Stocks, Emerging Markets

 

In addition to this, we will likely see energy markets supported, along with the projected valuations for companies in emerging markets.  This means that investors should be watching the United States Oil Fund LP ETF (USO) and the iShares MSCI Emerging Markets Indx ETF (EEM), as both of these instruments should benefit from a stronger NFP number, as well.  If we start to see a stronger labor market, we will also likely see rising demand for energy products, as this means that industrial production numbers should generate gains.  In emerging markets, the appetite for domestic equities should filter into EEM given the fact that this would also mean that there would be better demand for foreign imports in Asia.  All of these factors should continue well into the month of May.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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