The resolution of the Iran hostage crisis helped boost the US stock market and may have helped avoid a recession, according to BlackRock Merrill Lynch.
Last week the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite all rose by an average of almost 2%.
A total of 15 captured British sailors and marines were released last weekend after almost a fortnight in custody in Iran.
Bob Doll, vice-chairman and chief investment officer for global equities at BlackRock, claims their release helped boost trade activity in the US and improved market performance.
“The US stock market seems to be following a pattern of one week being up and the next being down,” he says.
“But last week was definitely an up week. Market sentiment was helped by the resolution over the issue of British sailors and marines being held by Iran.”
Doll adds increased merger and acquisition activity also had a bearing and both factors impacted on Federal Reserve decisions.
He says: “Last week was fairly typical of the type of economic environment we expect going forward—that is one in which economic growth slows, but not so quickly as to spark a recession.
“Additionally, we believe lingering signs of economic strength will disappoint those who are hoping that the Federal Reserve will soon enact rate cuts.
“We do believe, however, that as economic growth continues to weaken, inflation pressures will recede, which should set the stage for the Fed to begin cutting rates in the second half of this year.
“One factor that has been helping to push equity markets higher despite evidence of slowing economic and earnings growth has been ongoing corporate deal activity. In the first quarter, like the fourth quarter of last year, there was more than $1trn of reported deal activity, marking the first back-to-back quarters at that level since 2000.”
Doll adds BlackRock predicts a healthy outlook for US equity in the coming months.
“We believe the global economic backdrop remains healthy and conducive to continued good equity market performance,” he says. “The potential danger of a hard economic landing in the United States remains, although we believe such an event has a low probability of occurring.”
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