The stronger results for the latest quarter have encouraged the investors to take advantage of the market to lock in the profits. As a result, the global stock market slumped on Friday. The investors are unsure about the corporate earnings forecast as the market is speculated to enjoy lofty gains. The S&P index trades 18 times greater than the earnings estimate for the upcoming months while the average is 15.
The S&P index gained 5.5% at the end of the first quarter. This is the best quarterly performance since 2013 and investors wanted to make sure that they make profits. The valuations are quite stretchy as the market hopes for a huge boost in the economy. The economic boost may not always be supported by inflation and the corporate companies have to increase their earnings rapidly to provide gains for the investors. Investment analysts predict that the market would plummet if the earnings don’t increase as expected.
Experts predicted that S&P index growth will be capped at 2% by the end of 2017. On Friday, Dow Jones Industrial Average was at 20,663.22 and S&P 500 index lost 0.23%. Similarly, Nasdaq Composite also lost 0.04%. This is mainly due to the sudden rush of the investors to lock in their profits.
The oil prices closed higher on Friday. However, the quarterly results show a 5.7% loss. It is one of the worst quarters for oil since 2015. Brent oil was trading at $52.83 per barrel and US Crude was trading at $50.60. The oil futures lost 7% since the last quarter. When OPEC deal was expected to increase the oil prices, the futures took a downward turn and there is no room for redemption anytime soon. While the production cuts by the leading oil producers are effective, the balance in the market is threatened by the increase in US oil production.
The US treasury yields that have been rallying since the election of Donald Trump has also faced a decline in the past few days. The interest rate hikes support the yields, but the Fed’s comments have made the investors cautious about the market. The Federal Reserve commented that there is no need to increase interest rates at a faster rate because the inflation is controlled and economic growth is modest at its best. The experts predict that there will be more interest rate hikes in the upcoming months, but the Fed is taking the wait and see approach before announcing another hike.
The rally of the dollar has also flattened as the dollar index didn’t change a great deal. Greenback was gaining against global currencies a few months ago, but it has lost 1.7% in the first quarter, showing a worst performance in a year. Dollar was trading at 14-year highs in the beginning of 2017 mainly because Trump had promised economic reforms. The industry has now understood that it will take a long time for the economic reforms to be introduced because of the political risks involved.