Global Interest Rate Cuts May Broaden Stock Gains
Amidst easing interest rates by central banks worldwide, stock market gains are likely to spread beyond a select few, according to Bank of America Corp. strategists. This could accelerate economic growth globally.
Equity Breadth Remains Narrow
Currently, the equity market is dominated by the S&P 500 index and other large-cap stocks. However, if global economic activity improves due to lower interest rates, a broader range of stocks could see appreciation.
US Outperformance vs. Global Lag
For the past two years, US stocks have outperformed their international counterparts due to strong economic growth and technological advancements. However, Europe has shown promise in January, as investors anticipate less aggressive tariffs from President Donald Trump.
Catalysts for Risk-Taking
According to strategists, catalysts for further stock market gains include gold prices exceeding $2,800 per ounce and the New York Stock Exchange Composite Index surpassing 20,500.
Regional Preferences
Hartnett and his team have expressed a preference for stocks in Europe, China, and emerging markets, citing monetary easing in those regions.
US 'Virtuous Cycle'
In the United States, a "virtuous cycle" is said to be driving stock market gains, as rising equity prices increase wealth and encourage further investment in risk assets.
Equity Flows
In the week ending Wednesday, US stock funds saw inflows of $7 billion, while European funds experienced outflows of $200 million. Emerging market equity funds had redemptions of $3.4 billion.