U.S. equities and stock exchange traded funds turned slightly positive Thursday on the heels of the late rout in the previous session as investors reconsidered their initial reaction to the Federal Reserve’s meeting minutes.
U.S. markets were up after closing lower on Wednesday, reversing a rally after the Fed signaled it would trim its $4.5 billion balance sheet this year, reports Sinead Carew for Reuters.
“People in hindsight decided the market over-reacted,” Stephen Massocca, Senior Vice President at Wedbush Securities, told Reuters. “The Fed isn’t going to be indiscriminately pulling the prop out from under the market. There will be some sensitivity to what’s going on in the economy.”
Nevertheless, traders remained wary ahead of President Donald Trump’s meeting with his Chinese counterpart Xi Jinping as markets wait on an new developments on China-U.S. trade relations, along with any discussions over North Korea’s arms program.
Concerns over Trump’s ability to pass through pro-growth promises like tax cuts are also mounting after U.S. House of Representatives speaker Paul Ryan said a tax reform bill could take longer than the stalled bill to replace healthcare legislation.
Many traders are also anxious going into the new corporate earnings season, given the elevated valuations in the wake of the recent Trump-induced rally. The S&P 500 is trading at around 18 times forward earnings, compared to long-term average of 15.
“The market’s still look strong but they are massively overbought and we do have bank earnings beginning to come in next week. That will tell the real tale for the sector,” Phil Davis, chief executive of PSW Investments, tells Reuters.
Nevertheless, most remain optimistic over the mid-term outlook since the economy has exhibited signs of resilience and strengthening growth. For instance, the Labor Department recently revealed that the number of Americans applying for new unemployment benefits sharply fell last week.
“The economy is getting fundamentally better, even absent any tax reform,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company, told the Wall Street Journal. “There’s been a lot of skeptics out there throughout the recovery, but in general, the U.S. consumer is in a much more comfortable place.”
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