Trust the rally?

Trust the rally?

Tech companies are pulling the wagon.

Amazon’s shares have gained over 33% during the year while Alphabet, Google’s parent, has gained 25%.

The stock market sees how this firms jump from one purpose service to add several more and evolve into practical ecosystems full of value.

The U.S. stock market has repeatedly hit record highs during 2017, propped by strong gains by tech and financial companies, as economic indicators for the world’s largest economy continue showing signs of improvement and market players focus expectations on promised upcoming tax legislation by President Donald Trump, but signs of a slowing economic growth might still give pause to investors.

Large gains by the likes of e-commerce giant Amazon (NASDAQ:AMZN) –which hovered around the US$1,000 per share mark through most of May– and Alphabet (NASDAQ:- GOOGL) seem firmly anchored on investors optimism around the digital economy as tech companies now take up the top five spots on the most valuable firms in the world, with Apple (NASDAQ:APPL) topping the list at slightly over US$800 billion. Amazon’s shares have gained over 33% during the year while Alphabet, Google’s parent, has gained 25%.

The Standard & Poor 500 index edged repeatedly above the 2,400-point mark during May. And the joy seems to have spread overseas. “The proportion of individual shares in several major indexes trading above their 250-day moving average has hit a two-year high. In Europe and Japan, this proportion is above 80%,” wrote BlackRock’s Chief Investment Strategist Richard Turnill in a recent blogpost titled Equity Strength in Numbers. “High stock market breadth gives us confidence in the sustainability of gains,” he added. Market breadth is a reference of how many companies are going up on a market as compared to how many are losing value.

A large part of the market performance has been attributed by market observers to the new White House administration’s business-friendly message: “Much of the catalyst behind the market’s advance over the past several months has come on hopes that President Trump’s administration would push through legislation on taxes and regulation that would boost corporate profits and accelerate growth,” said website Market Watch in a recent market report.

Official data, however, might temper expectations, as the US’ Federal Reserve has warned about slower economic activity. On its May 3 statement, the Fed’s Open Market Committee decided to keep its key rate unchanged, arguing that despite “solid” gains in job creation in the country, “growth in economic activity slowed.”

“The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further,” it added. Also, the political landscape could throw a spanner in the works if more unsettling news about North Korea’s nuclear capabilities or about OPEC’s oil policy cause renewed worries in the market.

But “if anything, history suggests that long-term investors should buy stocks after markets fall on bad geopolitical news, not sell,” said The New York Times columnist James B. Stewart on his “Buy? Sell? Politics May Move the Market, but Rarely for Long.”


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