We are slowly getting used to the fact that every new day brings another record in the stock market in the United States or in Europe, where the bull market is also continuing. Even in Germany, where forecasts for growth in 2021 are being lowered, the DAX is setting new records.
European stocks rose slightly on Friday, with Frankfurt's DAX 30 hitting a new record high of 15,290 points, as good data from the U.S. and China boosted hopes for a global economic recovery. China reported a record first-quarter economic growth of 18.3 percent, slightly different from market expectations. Retail sales jumped 34.2 percent in March, the most since 1995 and above forecasts of 28 percent. Meanwhile, U.S. retail sales rose 9.8 percent in March, above expectations. Unemployment claims in the U.S. fell last week to the lowest level in more than a year. In Europe, EU new car registrations rose 87.3 percent year-on-year in March. News from companies may also have been important for the German stock market, with Daimler shares rising after announcing an increase in profits thanks to strong demand in China.
The ongoing earnings season on Wall Street could also favor the stock indexes there, which definitely seemed to be gaining on Thursday. The Dow Jones rose 57 points, or 0.2 percent, to 33,504. The S&P 500 rose 17 points, to 4,097, and the Nasdaq, rose 141 points, to 13,829. Thus, new all-time records were broken. Interestingly, Bloomberg reported that hedge funds have been a major player in this year's sell-off in Treasury securities, shedding more than $100 billion since early January. What could this mean for the stock market?
Well, it could mean a classic rotation of capital. Hedge funds in the zero interest rate environment are unlikely to hold cash, they have to spend it on something. After selling bonds, the natural direction may be the equity market. This one, after all, seems to be growing and may be supported by the funds' money. If so, it may be that currently on stock exchanges we observe the final push of share prices in the trend that has been going on since March 2020. Once it is done, it may be time for a much larger correction triggered by the realization of fund profits.
Then one may wonder what, in turn, they could do with the money received from selling shares? As a rule, when stock markets fall, gold may become more expensive. Is this scenario for the coming months correct? Let's wait and see.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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