Strong earnings to back US equities

A possible rate hike on May 2 from the US Fed won’t spoil the supportive sentiment

Earnings will continue to lend underlying support to US equities as higher rates are expected from the US Federal Reserve early next month.

About 86 companies posted better-than-expected earnings and revenues in the first quarter of 2018, with earnings rising 20 per cent in the three months to March. Companies such as Facebook, Amazon, Visa, Caterpillar, Coca-Cola, Verizon, Boeing, ExxonMobill are expected to release their results this week.

“It was the bears who were winning earlier because of the geopolitical climate and the trade sanctions. But with earnings coming in, we have seen bulls coming back to the market,” Nadi Bargouti, head of asset management at Emirates Investment Bank told Gulf News.

The Dow Jones Industrial Average fell 1.04 per cent to 24,407.56 on Friday, after a flat performance last week. The S&P 500 fell 1.07 per cent to 2,664.27 at close on the last trading day.

A possible rate hike on May 2 from the US Federal Reserve won’t spoil the supportive sentiment. “A 25 basis point rate hike will not be a detriment to the market. The market is already anticipating a few rate hikes this year and it won’t be surprise.

“Usually equities soften ahead of a rate hike and then recover after the increase. In a rising rate environment you may want to be in banks, insurance companies, technology companies and consumer discretionary, which benefits from a rate hike,” Bargouti said.

Emirates Investment Bank is planning to increase its exposure to emerging market equities to about 20 per cent from 10 per cent earlier as they benefit from an improved global economic conditions and higher commodity prices.

Lacklustre trading continued on the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) yesterday.

The Dubai Financial Market General Index fell 0.08 per cent to 3,079.51 by the end of the session. Traded value on the index fell to Dh93 million, down from last week’s average of Dh250 million.

“If the support at 3,060 holds strong, the Dubai index may continue to trade in the range, with resistance seen at [the] 3,153 level,” Shiv Prakash, a senior analyst with First Abu Dhabi Bank Securities (FABS), said in a note.

Most of the shares traded in a tight range. Emaar Properties slipped 0.71 per cent to close at Dh5.60, while DP World closed less than a per cent lower at $22. Emaar Development closed 0.73 per cent higher at Dh5.55 but Gulf Finance House fell more than 1 per cent to close at Dh1.28. Air Arabia closed 0.83 per cent higher at Dh1.21.

The ADX General Index closed 0.51 per cent lower at 4,682.47.

“The ADX index is trading sideways up and may head towards the 4,950 target zone in the short term,” Prakash said.

Taqa closed 3.36 per cent higher at Dh1.23 while Waha Capital went the other way, closing 2.23 per cent lower at Dh1.75. Etisalat slipped 0.86 per cent to close at Dh17.25.

“Etisalat took support near the previous low at Dh17, the shares are expected to recover back higher towards the neckline barrier at Dh17.90 in the near term,” Prakash said.

Aldar Properties closed nearly 1 per cent lower at Dh2.08.