The Advance: 27th – 31st May 2013

All three major US indices closed for the long weekend down, after one of the most impressive rallies in years. As investors sit at home this Memorial Day weekend, they will no doubt be wondering whether the declines will continue when the markets open on Tuesday morning.

With the FTSE also closed on Monday the only real signal of how the markets could react will come from the Nikkei in Japan — and that has hardly been the most stable of markets over the last few days itself, declining by more than 7% on Thursday.

The biggest concern for investors is whether or not the Federal Reserve will bring an end to their $85 billion a month bond purchasing programme. If they were to bring the monetary stimulus package to a close then other central banks may see it as a sign of recovery in the worlds largest economy, which may lead to other central banks following suit. Concern for the longevity of the programme was raised after the release of the Federal Reserve’s minutes on Wednesday from their May meeting.

Analysts have been predicting a decline for weeks now, with “correction” being the word of everyones lips. However the rally had gained so much momentum that investors were using every decline as an opportunity to buy into the markets, which drove indices across the globe to record highs.

It will come as little surprise to most that those same analysts are now predicting that this is a sign of the rally finally coming to an end. When asked for his views on the current situation, Michael James of Wedbush Securities said, “Buyers can only take stocks so far. There’s certainly a little bit of buyers’ fatigue setting in, and with the market being as extended as it is, it’s certainly not unrealistic to think sellers will start to come in and take advantage of the strength we’ve had”.

With May consumer confidence data being released when the markets open on Tuesday and preliminary GDP data coming out on Thursday, plenty of opportunities for investors to drive the market will present themselves next week. Friday will also see the release of consumption and personal income data for last month, which could underpin the weeks market movements — for better or worse.