MARKETS SPECTATOR: Stock rally splutter?

The global rally in stocks may be about to splutter. At least that is the conclusion judging by weekend commentary surrounding the latest US job numbers. The world’s largest economy added a disappointing 88,000 jobs in March compared with 268,000 in February.

The bears’ case is that the market has simply gotten too far ahead of itself in view of S&P 500 Index’s record high last week. The market has ignored anemic data and been rather too ebullient about data that was at best average.

More worryingly for investors in mining stocks, commodity and precious metals prices continue to tumble, suggesting that end use demand continues to ebb.

If miners are in for a tough week, bank, utility and telecommunication stocks may still eke out gains. The global search for yield story has been reinforced by the Bank of Japan’s decision last week to join the US Federal Reserve, the Bank of England and the European Central Bank in pumping money into the financial system.

The BoJ’s decision will benefit the Australian dollar. It will also attract global investors whose search for yield has driven them to buy Australian bank stocks, driving the big four upwards to the point where they now have market caps that place them among the 20 biggest in the world.

But the attraction of banks, telecommunication and utility stocks may not hold up the S&P/ASX 200 Index. Tim Rocks, Nomura’s Australian strategist, says central banks have hoodwinked markets into believing quantitative easing has helped the fundamental economy.

"In the last three years markets have rallied between September and March after the Fed’s Jackson Hole meeting where the policy of quantitative easing has been reiterated," he says.

“It’s purely a manipulation of markets,” he adds, referring to QE. “There has been no net improvement in economic activity.”