Stock Market Forecast: Neutral
Dow Jones, Nasdaq 100, FTSE 100 Forecasts for the Week Ahead
US equities were treated to a Fed meeting last week that might allow them to continue higher in the months to come after the central bank reiterated its accommodative policy path. In the shorter term, however,the impending conclusion of the Fed’s Supplementary Leverage Ratio (SLR) may give rise to volatility as big banks might be forced to increase their capital holdings and/or reduce their exposure to Treasurys. Should they adjust by selling Treasurys, yields might tick higher which could pressure technology stocks further.
Nasdaq 100 to Dow Jones Ratio Price Chart: Daily Time Frame (January 2020 – March 2021)
The reflation trade has been unfolding since early February as evidenced by the continued drawdown in the Nasdaq 100 to Dow Jones ratio. The rotation has seen investors shy away from the market’s mega-cap leaders in favor of smaller, industrial or value-oriented stocks as US Treasury yields rise. If yields continue to rise toward the S&P 500 earnings rate, which stands at around 2.5%, the current rotation trade could gain steam or transition into a broader equity selloff.
Video Explainer – What Rising Treasury Yields Mean for US Equities and Gold
That being said, the longer-term fundamental outlook for equities remains constructive as the Fed revealed upbeat economic projections while simultaneously maintaining its timeline to raise interest rates. Together, the central bank’s findings paint a rosy picture of the US economy and corporate earnings that might propel stock prices higher in the long term.
FTSE 100 Forecast
While the US indices negotiate rising yields and expiring central bank policies, the FTSE 100 will look to more traditional catalysts in upcoming inflation and employment data. The prints are unlikely to completely uproot the index’s longer-term recovery, but they could give rise to shorter-term volatility. In the meantime, follow @PeterHanksFXon Twitter for updates and analysis.
Source: DailyFX Economic Calendar
–Written by Peter Hanks, Strategist for DailyFX.com