Can The Momentum Continue?

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Last week, four out of five trading sessions closed in the green indicating the sentiments towards the Bull Run. That also resulted in the broader index, i.e. the S&P 500, reaching a two-month high and posting third straight weekly gains. The market turned optimistic on Tuesday after the energy sector showed signs of stability in the crude oil prices as well as the materials sector. Now the question is whether the market can maintain the momentum up or will it get dragged down after China growth contracts?

Weekly Gains

The broader index, S&P 500 gained 2.67% or 51.94 points at 1999.99 while the Dow Jones Industrial Average’s advanced 366.8 points or 2.2% to close the week at 17,006.77 points. Similarly, the technology-stock index NASDAQ edged up 126.55 points or 2.76% to 4717.02 points. Also, compared to the low recorded on February 11, the closing points indicated that the three indices surged 10.5%, 9.7%, and 12.1% respectively.

The gains were driven by the financial stocks as they were the biggest winners for two primary reasons. One was that the economic data was not as weak as the market thought it to be, and the second reason was that the improving data on the economy provided fresh hopes that the Fed was on track to raise the interest rates. The nearly 10% increase in oil price futures also allowed the energy sector to post handsome gains of 5.8% from the preceding week.

China Growth Reduction To Impact

As in the past, some key economic data might provide the directions to the stock markets this week. For instance, Consumer Credit data is expected on Monday. The market expects $16.5 billion for January, which was lower than the preceding month’s $21.3 billion. Similarly, small business optimism survey is expected on Tuesday from the National Federation of Independent Businesses for the month of February. The consensus called for a reading of 94.2, which was higher than the previous month’s 93.9. On Friday, import price index data for February would be released with the market expecting -0.8 while the preceding month recorded -1.1%.

However, the most important factor would be the reduction in the economic growth rate of China for the current year. The Government has reduced it to 6.5% – 7.0% following the 6.9% growth recorded in 2015, which was the slowest rate in two and half decades. It was also ten basis points lower than the target of 7.0%. Now, the government hopes to achieve 6.5% average growth in the five-year period starting from 2016. The government’s projection appears to be in line with the analysts, who were expecting around 6.5%. That meant there would be fewer downside pressures.

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