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The US stock indices jump in early morning trade as the market prepares for a near-term lift before the quarter closing.
It’s a good start to the new week as the Dow Jones Futures is trading 0.3% up in the early morning trade on Monday. Other indices are also in the green suggesting some market optimism in place.
Despite this, Wall Street is likely to witness the worst end to the first half of the year in the last many decades. In the early morning trade, the Nasdaq Futures is up 0.6% while the S&P 500 futures has gained 0.5%. This is in continuation of the last week’s solid comeback wherein the Dow Jones gained 1600 points or 5.4%. For the last week, each of the Nasdaq Composite and the S&P 500 had 7.5% and 6.5% respectively.
The S&P 500 is still trading 19% down from its all-time high and 18% since the year began. However, it has quickly gained 7.5% from its bottom earlier this month.
A Trend Reversal or Near Term Recovery
Investors and analysts are wondering whether this is certainly a trend reversal or just a bear market rally. As per a CNBC report, stocks are likely to get a near-term lift this week before the quarterly closing. This is because investors will rebalance their holdings before the quarter-end. JPMorgan’s chief global markets strategist Marko Kolanovic said:
“Next week’s rebalance is important since equity markets were down significantly over the past month, quarter and six-month time period. It is happening in a period of low liquidity. On top of that, the market is in an oversold condition, cash balances are at record levels, and recent market shorting activity reached levels not seen since 2008″.
Recent rebalances have been positive for stocks and so could be this one. Terry Sandven, chief equity strategist at US Bank Wealth Management said:
“In a sense, the equity market is likely to be… in a go-nowhere-fast mode for the foreseeable future. Inflation is running hot, sentiment is subdued, liquidity is evaporating, and earnings are both a bright spot and a wildcard. So, in aggregate, to us, that implies that we’re probably in a sideways trending mode for a while”.
It will be interesting to observe the inflation reading for the month of June. Analysts are expecting that inflation could come less than that for the month of May.