A new wave of optimism in equity markets has catapulted stocks to new highs. This surprising growth was reflected across the board & spilled over into international markets. The MSCI All Country World Index extended last week’s gains in the midst of a series of takeovers. U.S. government debt was also lowered when manufacturing gauge soared to a one year high.
Even though this was an impressive week for stocks, treasuries dropped as rising interest rates appear immanent. Offshore Yuan & oil also hit new lows in the face of political instability. Despite these hiccups, things seem deceivingly stable.
Stocks Surge As Fears Dissipate
As the S&P 500 Index member’s reports roll in, it’s apparent that 2016 has been a profitable year. Over a third of the participating companies turned in their reports this week, including heavyweights such as Apple Inc. Out of the new reports 80% of companies have already beat earnings estimates. This is a stark contrast to projections for a contraction last month. Thanks to this new burst of momentum analysts are changing their predictions. Now the year on year profit is set to be flat after the third quarter season ends. This new wave of global trading is being inspired by blooming deals in the US.
Emboldened by a series of epic takeovers, stocks soared around the world. MSCI’s global gauge of equities climbed 0.3%, trimming its monthly decline to 0.8%. The S&P 500 rose 0.4% to 2,150.36, putting it on its first weekly gain this month. B/E Aerospace stocks skyrocketed 15% after being bought out by Rockwell Collins Inc. for $6.4 billion. TD Ameritrade teamed up with its largest stakeholder to buy Scottrade Financial Services Inc. AT&T Inc. slipped for the third day in a row after agreeing to pay $85.4 billion for Time Warner Inc. T-Mobile grew by 7.3%, fueled by better than estimated sales.
European shares were left almost unchanged since a late selloff in defensive stocks offset the gains made by banks. Both Spain’s Bankia SA & CaixaBank SA experienced 4% in growth. This welcome improvement paved the way for the best performance of lenders in the Stoxx Europe 600 Index. Joint losses by Nestle SA & Anheuser-Bush InBev NV left food & beverage companies in the biggest decline of the equity gauge. AstraZeneca Plc mirrored this slide as they pulled health care stocks to record lows.
“The PMI was a little stronger than expected,” said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. “It’s a good sign. We are looking for that revival in manufacturing. People are getting more convinced that the Fed is going to go in December.”
The growing probability of a rate hike is doing wonders for equities & stocks. Historical 30-day volatility on the MSCI Emerging Markets Index hit its lowest level in 6 weeks. Futures show traders predict a 70% chance of a rate hike by December. This figure has gone up 4% in the last week, with a measly 20% chance of an increase at the Fed’s policy meeting next week. The Federal Reserve is doing a great job at preserving international financial stability by approaching the raise cautiously. Only time will tell if this newfound stability will last until December.