Dow Jones futures were around 300 points lower before the open after the index closed 36 points higher on Wednesday. The market is reacting to the latest stimulus talk from the Federal Reserve, which accompanied yesterday’s rate decision.
The Fed indicated that rates would remain low until at least 2023 and that no new stimulus measures would be required right now. The event follows other central banks who will be doing the same, with Australia’s central bank and Japan, holding rates at current levels. This has maybe spooked some traders with the recent talk of lofty valuations in U.S. stocks.
Tony James, Blackstone Executive Vice Chairman told CNBC in a Wednesday interview that stocks could face a “lost decade” in valuations. James mentioned the potential for higher taxes and regulations under a Biden Presidency and said:
“All of that will be economic headwinds for companies. So I think you can have disappointing long term earnings growth with multiples coming in a little bit, and I can see anemic equity returns over the next five to 10 years”.
Bridgewater Hedge Fund founder Ray Dalio also used the “lost decade” term in June, while warnings his clients of a slow recovery for some companies. This is the upside risk for stocks now with many companies outpacing the progress of the economy. There is still the virus looming in the background with the U.K.’s Chief Medical Officer calling for a two-week lockdown and also rising cases in countries around Europe, as well as India.
Dow Jones Technical Outlook
The Dow Jones futures contract is lower and the market is testing a key support level, which marked the high on June 9th. If price can get through there then a pullback to 26,000 could happen. A close above 28,000 could see further gains ahead.
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