Investors Rally on Hopes of Rescue by Central Banks
The stock market rally in recent sessions is being fueled by hopes central bankers will once again come to the rescue, following last week's historic Brexit vote.
"I think this is a reflection of what's changing in terms of the monetary policy stance worldwide," said Josh Mahony, a market analyst with IG Markets, based in London. "I feel like this is short-term rally off of what I believe to be a negative piece of news."
Mahony said the Bank of England will likely cut interest rates, and pointed to remarks from Bank of England Governor Mark Carney on Thursday, who hinted that more easing may come this summer. Benchmark interest rates in the UK stand at 0.5%, giving the BOE little room to lower rates, without entering negative territory -- a strategy employed by the European Central Bank and the Bank of Japan.
Stocks are on track to post four straight sessions of gains Friday following two days of Brexit-related declines. Meanwhile, Friday marks the first trading session of the third quarter. The S&P 500 rose roughly 2% during second quarter. Going forward, Mahony expects investors to flood safe-haven assets, primarily the U.S. dollar.
He also said the rise of the Japanese yen in recent months, also considered a safe-haven currency, may spark more intervention from the Bank of Japan at its meeting later this month. A stronger yen makes Japanese firms less competitive globally.
As for equities, he expects consumer staples to be a sector of interest in the second half. This is a sector that typically performs well during times of economic uncertainty. Consumer staples stocks in the S&P 500 gained 4.8% over the past month.