Each and every one of these events, to varying degrees, had a negative initial impact on stock index futures but also each and every time this variety of geopolitical events only temporarily interrupted the bull market, which was followed by a subsequent rally to new highs.
Why have stock index futures been so resilient, soaring to record heights, in the face of so many bearish geopolitical events? The answer lies in the international interest rate structure. It has been the historically accommodative global monetary policies that have been the driver behind the meteoric price gains for stock index futures over the last eight years. Every time traders and analysts became too focused on the geopolitical “risk-off” event of the day, this market has been rescued by easy central bank monetary policies.
With global interest rates as low as they are in the U.S. and in many countries they are still negative, there is plenty of accommodation left in the international banking system. This remains the case in spite of the four rate hikes from the Federal Reserve since 2015 and another one likely at the Federal Open Market Committee meeting on 13 December and in spite of the recent key lending rate increases from other central banks, such as the Bank of England and the Bank of Canada. In addition, the European Central Bank announced it is scaling back its massive quantitative easing program.
In spite of several major central banks taking some of the punch out of the punch bowl, global interest rates are still low enough to sustain the bull market in stock index futures for quite a while longer.
And now we have the increasing probabilities of a delayed U.S. tax reform, which has the bears excited and asking, “Could this be the beginning of the new bear market?” My answer to this question is, “No.” Tax reform delays will only temporarily get in the way but will not derail the uptrend for stock index futures.
Alan Bush
E:
alan.bush@admis.com T: 001 312 242 7911
Chart 2: Dow Jones Futures -Weekly
Source: Provided by QST
21 | ADMISI - The Ghost In The Machine | November/December 2017
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