Jones Lang LaSalle
The Fed: End of the Line?
While global rates remain on the rise, S&P strategists say the FOMC's May rate hike may be the last for the year
Here are the notes from Standard & Poor's Investment Policy Committee meeting, held Wednesday, May 3.
S&P's Asset Allocation
U.S. Equities Foreign Equities Bonds Cash
45% 20% 20% 15%
Market Outlook
Fundamental Outlook: S&P's Equity Strategy Group lowered the recommended allocation to the Health Care sector to market-weight from over-weight as flattening profit margins for managed care, combined with compressing valuations for biotechs and medical equipment stocks, have offset the expected recovery prospects for the major pharmaceuticals.
With close to 75% of the companies in the S&P 500 having reported Q1 results, we find that the ratio of positive to negative earnings surprises is 3.5X for Q1 2006 versus 2.3X for Q4 2005.
Technical Outlook: The S&P 500 posted a marginal new recovery high on Tues., May 2, but prices have reversed once again. Trendline resistance, just above current prices, has acted as a ceiling for the index during the past two months. There has been clear evidence of internal divergences, in our view, both on a short-term and long-term basis, suggesting that the upside is probably limited. DJIA has been outperforming the S&P 500 and the Nasdaq since the end of January, another warning sign, in our view. Often, DJIA leadership occurs during overall market pullbacks.
While the possibility exists for another run above the $75 level, we believe oil is close to peaking out from an intermediate-term perspective. A break below $70, would, in our opinion, complete a topping formation.
Economic Outlook:
Longer-term: Global rates remain on the rise. If, as we expect, the U.S. economy cools over the coming months, we expect the May rate hike to 5.0% to be the last for the year. The Bank of Canada raised rates 25 bps to 4.0% on April 25. The Bank of Japan has indicated an end to its quantitative easing, but is expected to hold a zero-rate policy through most of 2006. The ECB raised rates to 2.5% on March 2; we expect another rate hike in June. The People’s Bank of China raised rates 27 bps to 5.85%. This was the first rate hike in 18 months and only the second in the last 10 years.
The Fed: End of the Line?
While global rates remain on the rise, S&P strategists say the FOMC's May rate hike may be the last for the year
Here are the notes from Standard & Poor's Investment Policy Committee meeting, held Wednesday, May 3.
S&P's Asset Allocation
U.S. Equities Foreign Equities Bonds Cash
45% 20% 20% 15%
Market Outlook
Fundamental Outlook: S&P's Equity Strategy Group lowered the recommended allocation to the Health Care sector to market-weight from over-weight as flattening profit margins for managed care, combined with compressing valuations for biotechs and medical equipment stocks, have offset the expected recovery prospects for the major pharmaceuticals.
With close to 75% of the companies in the S&P 500 having reported Q1 results, we find that the ratio of positive to negative earnings surprises is 3.5X for Q1 2006 versus 2.3X for Q4 2005.
Technical Outlook: The S&P 500 posted a marginal new recovery high on Tues., May 2, but prices have reversed once again. Trendline resistance, just above current prices, has acted as a ceiling for the index during the past two months. There has been clear evidence of internal divergences, in our view, both on a short-term and long-term basis, suggesting that the upside is probably limited. DJIA has been outperforming the S&P 500 and the Nasdaq since the end of January, another warning sign, in our view. Often, DJIA leadership occurs during overall market pullbacks.
While the possibility exists for another run above the $75 level, we believe oil is close to peaking out from an intermediate-term perspective. A break below $70, would, in our opinion, complete a topping formation.
Economic Outlook:
Longer-term: Global rates remain on the rise. If, as we expect, the U.S. economy cools over the coming months, we expect the May rate hike to 5.0% to be the last for the year. The Bank of Canada raised rates 25 bps to 4.0% on April 25. The Bank of Japan has indicated an end to its quantitative easing, but is expected to hold a zero-rate policy through most of 2006. The ECB raised rates to 2.5% on March 2; we expect another rate hike in June. The People’s Bank of China raised rates 27 bps to 5.85%. This was the first rate hike in 18 months and only the second in the last 10 years.
posted by Jones Lang LaSalle NJ News Blog at 10:15 AM
<< Home