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Global market sentiments soar on upbeat earnings, outlook

Dubai: With most markets rallying worldwide, investors and analysts see the current positive momentum continuing for global stocks in the weeks to come.

In the US, stocks ended the week up, with the S&P 500 returning 1.4 per cent. The returns were broadly seen across almost every sector – and a similar pattern was seen in most markets elsewhere.

Analysts expect corporate earnings to be the major focus for investors in the week ahead, as they evaluate whether rising costs are squeezing margins and signaling a build in inflationary pressures.

Earnings in focus

This upcoming week sees a diverse array of earnings including Netflix, Coca-Cola, IBM and Johnson & Johnson. Moreover, existing home sales in the top economy will be announced this upcoming Thursday, and new home sales are announced Friday.

So far, with one week of a busy quarterly company earnings in, companies are beating earnings estimates by a wide margin of more than 84 per cent. Earnings growth for the S&P 500 is 30 per cent, based on actual reports and estimates, making it the best quarter since the third quarter of 2010.

Companies are finding new ways to cut costs, so when revenues come back, analysts view margins soaring in the short-term. This implies that some of the COVID-19-related costs will come down, making it one of the main positive catalyst for earnings this time around.

Inflation, margin pressures

While investors are not only closely eyeing how margin-related commentary from companies can impact individual stocks, but also for what they broadly say about inflation seeping into the economy.

Major US banks, like JPMorgan Chase, Goldman Sachs and Bank of America reported better than expected profits in the past week.

The S&P 500, a benchmark tracked by indices worldwide, ended the week at a record level with a gain of 1.4 per cent. The Dow, higher for a fourth week, gained 1.2 to end the week also at a record. The tech-heavy weight index Nasdaq gained 1.1 per cent for the week.

Tech stocks are rising

Technology has been the top-performing S&P 500 sector in April, rising 8 per cent versus a 5 per cent rise for the benchmark index. Big tech-related growth stocks in other S&P 500 sectors such as Amazon Inc, Tesla Inc and Google-parent Alphabet Inc have also risen higher.

Market watchers also add that focus this week will also be on US employment numbers after a surprise decline in Thursday’s report. The US inflation figures for March showed a pick-up in headline inflation to 2.6 per cent year-over-year.

While there is little data in the week ahead, aside from manufacturing and services data Friday, the markets will keep a close eye on unemployment figures after Thursday’s report of 576,000 new claims — the lowest level since the early days of the pandemic.

Strong economic growth

In the past week, economic reports underscored how strong the economic momentum could be in the second quarter. Retail sales for March were up nearly 10 per cent, and jobless claims were the lowest of the recovery.

Stock investors will also be watching the bond market, where yields declined in the past week and then reversed. The 10-year US Treasury was at 1.59 per cent Friday, after tumbling sharply on Thursday.

Some analysts have become more wary of the equity market in general. Strategists at BofA Global Research recently issued a report listing five reasons for caution on stocks, including high valuations and outsized returns over the past year.