Markets were mostly lower on Monday.
The S&P 500 fell 0.6 percent, the STOXX Europe 600 fell 0.9 percent and the Nikkei 225 fell 0.8 percent.
“The market is taking some time to catch its breath,” said John Conlon, senior portfolio manager and director of equity strategy at People’s United Advisors. “We’ve been setting records for several days, so it seems like a good time to take some money off the table and reassess what’s going on.”
US stocks continued on their record-breaking run last week.
The S&P 500 closed at 3,240.02 on Friday, another record high. It is now up 29.25 percent for 2019.
Edward Yardeni, president of Yardeni Research, sees further gains for the S&P 500 next year.
“Looking at 2020, I’m expecting earnings to be up 4% to 5%, which isn’t fabulous,” he told CNBC on Friday. “But it should be enough to get the market up to 3,500 by the end of next year.”
However, Yardeni also noted that the market is not cheap and suggested that it could fall 10 to 20 percent if the rise is too rapid.
“Bull markets do best when you’ve got a wall of worries,” Yardeni said. “What I’m worrying about is nobody is worried anymore.”
Similarly, Lance Roberts at Real Investment Advice said that markets are “extremely deviated from long-term trends”. Combined with “the extreme complacency and excess bullishness”, a “fairly decent 5-10% correction is likely over the next couple of months”.
Markets were mixed on Friday.
The S&P 500 was flat, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 fell 0.4 percent.
“The path of least resistance appears to be higher,” said Jeffrey Kravetz, regional investment director at US Bank Private Client Reserve.
However, with just two trading days to go for the year and the main US stock indices potentially putting in their best annual performances since 1997, not everyone is sanguine about next year.
Cresset Capital’s chief investment officcer Jack Ablin is telling investors to brace for stocks to drop at least 15 percent in early 2020.
“Valuations are pretty stretched,” he told CNBC on Thursday.
Clem Chambers, CEO of stocks and investment website ADVFN, wrote on Forbes that the “S&P 500 looks to have entered a bubble”.
Markets rose on Thursday.
In the US, the S&P 500 rose 0.5 percent to another record high. The Dow Jones Industrial Average and Nasdaq Composite also hit record highs, rising 0.4 percent and 0.8 percent respectively.
in Asia, the Nikkei 225 rose 0.6 percent and the Shanghai Composite rose 0.9 percent.
European stock markets were closed.
“Stocks look like they just wont quit. The rally is for real,” Chris Rupkey, chief financial economist at MUFG, said in a note Thursday. “The economy’s engines continue to hum.”
Mark DeCambre at MarketWatch recalled how the S&P 500 hit a low on Christmas Eve last year.
“On Christmas Eve last year, the S&P 500 index had fallen nearly 20% for the year and was on the verge of a bear market,” DeCambre wrote. “But this year’s rally has seen the S&P 500 index recover and return 37% when the market closed for Christmas Eve on Tuesday.”
DeCambre noted that some analysts think that stocks could continue to climb higher into next year.
“The strength in long-term internal trends not only signifies an improving market but helps build a more sustainable backdrop as levels of technical support strengthen and multiply, creating more reasons to buy dips,” wrote Jeff DeGraaf, chairman of Renaissance Macro Research, in a Tuesday research note.
“In 2019, expanding valuations drove gains for stocks, but in 2020, we expect earnings to do the heavy lifting,” wrote John Lynch, Chief Investment Strategist for LPL Financial, in a note on Tuesday.
Indeed, BTIG’s chief equity and derivatives strategist Julian Emanuel believes stocks could surge another 22 percent next year.
“We think confidence will ultimately translate into the public getting this enthusiasm for stocks which could cause prices to move as high as 3,950,” he told CNBC on Monday.
Markets were mixed on Tuesday.
The S&P 500 lost a point and the Nikkei 225 rose marginally but the Nasdaq Composite and the STOXX Europe 600 both gained 0.1 percent to hit record highs.
Some analysts think that US stocks could see losses in January due to tax-related selling.
Still, optimism remains high, with Ivan Martchev, an investment strategist with Navellier and Associates, saying that US stocks will go higher in 2020, the economy will strengthen, emerging markets will get more attractive and President Donald Trump will get re-elected.
However, Scott Minerd, chief investment officer at Guggenheim Partners, warned that we may be near a Minsky moment.
In a fourth-quarter market outlook, Minerd said that the Federal Reserve rate cuts this year has produced a “silly season in risk assets”, noting that “risks are building in various areas of the fixed-income credit markets, particularly in corporate credit”.
Markets were mixed on Monday.
The S&P 500 rose 0.1 percent to another record high but the STOXX Europe 600 was flat and the Shanghai Composite tumbled 1.4 percent.
“The bigger catalyst for Mainland China’s slump was news out right after the open that the China Integrated Circuit Industry Investment Fund was reducing its ownership of three Mainland publicly traded semiconductor stocks to under 1%,” wrote Brendan Ahern, chief investment officer at Kraneshares, in a note.
More supportive of markets was an announcement by China on Monday that it will lower import tariffs on over 850 products, including frozen pork, from 1 January, as well as some information technology products starting 1 July.
Tom Martin, senior portfolio manager at Globalt, said that China’s actions “are a positive indicator for the de-escalation of tensions” and adds to other positive news on trade that “may help the market continue to drift higher”.
US economic data on Monday were mixed. Orders for durable goods fell 2 percent in November, the biggest decline since May, but new home sales increased 1.3 percent.
The S&P 500 ended last week at a record high of 3,221.22 amid encouraging US economic data and optimism over an impending US-China trade agreement.
However, with the S&P 500 now up 28.55 percent year-to-date, maybe it's time to start worrying about euphoria in US stocks.
“The bulls have broken out and the bears have gone into hibernation,” wrote strategists at RBC Capital Markets. “If the market keeps grinding higher in the very near-term, these are likely to be important sign posts that will eventually help mark the top.”
“Typically, there is euphoria before pullbacks,” noted Aron Pataki, a portfolio manager at Newton Investment Management.
Indeed, Zero Hedge says that the reflation trade is doomed.
Citing analysis by Masanari Takada, cross-asset quantitative strategist at Nomura Securities, Zero Hedge said that “without a Chinese pillar of support, without validation from CTAs, and with the Fed's 'NOT QE' set to end in April, the reflation trade is nothing more than another Fed-created headfake, and has at most another 4 months before financial gravity, and a record $255 trillion in global debt, unleash the deflation trade”.
Markets were mostly higher on Friday.
The S&P 500 rose 0.5 percent to another record high and the STOXX Europe 600 rose 0.8 percent. However, the Nikkei 225 fell 0.2 percent.
While a report on Friday showed that the estimate of US third-quarter GDP growth was unchanged at an annualised 2.1 percent, another report showed that US consumer spending rose 0.4 percent in November, the biggest increase since July.
“Despite the late start to the holiday season, U.S. consumers were in a festive mood, suggesting the backbone of the economy remains rock solid,” said senior economist Sal Guatieri of BMO Capital Markets.
“Overall, the bottom line is that the economic numbers keep coming in strong,” said Joe Saluzzi, partner, co-head of Equity Trading at Themis Trading.
MUFG chief economist Chris Rukey said that with core consumer inflation low, “you can bet your bottom dollar, the Federal Reserve is going to keep enough punch in the punch bowl to make sure that 2020 is going to be a super year for stocks”.
Markets were mostly higher on Thursday, with the S&P 500 in particular rising 0.5 percent to another record high.
While the US House of Representatives voted to impeach US President Donald Trump on Wednesday, markets appeared unfazed.
“The market is suggesting right now that it’s meaningless,” said Kent Engelke, chief economic strategist at Capitol Securities Management.
“With the reduction in risks from the uncertainty that the American trade war produced in 2019, we’re keeping our fingers crossed that the economy will get some more wind in its sails in 2020 to extend its longest winning run in history,” said MUFG chief economist Chris Rupkey.
“The trend is your friend. We’re very bullish on the market right now,” Merrill Lynch’s Andy Sieg told CNBC on Thursday. “There’s an upside scenario that could see the market up 20% from these levels.”
Markets fell on Wednesday.
The S&P 500 fell marginally to end its five-day rally while the STOXX Europe 600 fell 0.1 percent and the Nikkei 225 fell 0.6 percent.
Despite the pause in the rally on Wednesday, Federated Investors’ chief equity market strategist Phil Orlando believes the S&P 500 could surge 10 percent and hit 3,500 by spring as the economy reaccelerates.
“We’ve seen the downturn. Now, we’re going to start to reaccelerate we think over the course of calendar 2020,” he said.
Similarly, Leuthold Group’s chief investment strategist Jim Paulsen sees a re-acceleration in the global economy. He thinks that the S&P 500 could rise another 15 percent in 2020 but also that “emerging markets will be the big winner of 2020”.
In contrast, UBS strategist Francois Trahan thinks that the surge in corporate debt could pressure stocks in 2020.
“Leaving aside our biases for markets and the economy, LEIs of credit markets point to a deterioration of ratings throughout 2020,” said Trahan in a note.
Markets were mixed on Tuesday.
The S&P 500 rose marginally to eke out another record high while the Shanghai Composite jumped 1.3 percent.
However, the STOXX Europe 600 fell 0.7 percent over concerns about the prospect of a hard Brexit following reports that UK Prime Minister Boris Johnson will introduce a legal provision to bar an extension of trade negotiations beyond a year.
“We’ve not resolved Brexit or trade or tariff issues, but we’ve got more clarity,” said Jennifer Ellison, principal at San Francisco-based BOS.
Edward Moya, senior market analyst at Oanda, wrote that while a US-China phase one trade deal is expected to be finalised in the first week of January, “this deadline could get pushed even further as not all the terms have been agreed upon”.
Markets mostly rose on Monday.
The S&P 500 rose 0.7 percent to a record high. The STOXX Europe 600 jumped 1.4 percent to also close at a record high. In Asia, the Shanghai Composite rose 0.6 percent but the Nikkei 225 fell 0.3 percent.
Some analysts see the stock market on the brink of a record-breaking run.
UBS Global Wealth Management Chief Investment Officer Mark Haefele said that the partial US-China trade deal struck last week is a bullish factor. “This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment,” he wrote.
Meanwhile, analysts at Bank of America Merrill Lynch, led by strategists Michael Hartnett, see the market as “primed for Q1 2020 risk asset melt-up”, with the Federal Reserve and the European Central Bank providing ample support.
A Washington Post article states that the US economy has shaken free of recession fears.
“The U.S. economy is heading into 2020 at a pace of steady, sustained growth after a series of interest rate cuts and the apparent resolution of two trade-related threats mostly eliminated the risk of a recession,” the article said.
“Some of the obstacles to growth, including the Fed and trade uncertainties, are being removed, and that will have a powerful positive impact on the economy,” said Larry Kudlow, US President Donald Trump’s top economic adviser.
However, Nicholas Spiro, a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm, wrote in a South China Morning Post article that there remain reasons to be concerned about the global economy.
“Survey data on the euro zone published last week showed the bloc’s manufacturing sector remaining deep in contraction territory,” he noted.
“Even the optimism surrounding America’s economy may be misplaced,” he said. “US political risk is increasing sharply in the run-up to next year’s crucial presidential election, and at a time when US equity valuations are stretched.”
Markets rose on Friday.
The S&P 500 rose 0.01 percent to another record high, the STOXX Europe 600 rose 1.1 percent and the Nikkei 225 surged 2.6 percent.
The announcement of a trade deal between the US and China, including the cancellation of new tariffs originally set to be implemented on Sunday, helped boost investor sentiment.
US stocks gave up some early gains though amid concerns that the agreement was not substantial enough.
Randy Frederick, vice president of trading and derivatives at Charles Schwab, said that the deal is not as “robust” as some had hoped. “The big question is whether the economic data and earnings are sufficient, plus the promise of no new tariffs, to push the market higher.”
Stocks rose on Thursday, with the S&P 500 rising 0.9 percent to a record high.
Reports of an impending trade deal between the US and China fuelled Thursday's rally, with US President Donald Trump himself saying that they were nearing a “big deal”.
Also on Thursday, the European Central Bank decided to keep its main deposit rate at negative 0.5 percent while maintaining its rate of asset purchases at €20 billion a month.
“We’re in an easy money environment, thanks to Jerome Powell, Christine Lagarde and central bankers around the world,” said Yousef Abbasi, director of US institutional equities and global market strategist at INTL FCStone.
The S&P 500 rose 0.3 percent on Wednesday after the Federal Reserve left interest rates unchanged at its monetary policy meeting and said that it did not expect to change interest rates in 2020.
“Powell was very explicit in guiding that only a ‘persistent, significant’ rise in inflation would lead him to support hikes,” economist Andrew Hollenhorst of Citibank said in a note to clients.
“There are not worrisome deflation undercurrents in this economy and Fed officials do not need to cut interest rates further to boost economic demand,” said MUFG chief economist Chris Rupkey.
According to BCA Research, the Fed's present monetary stance makes it a good time to own stocks.
BCA’s Chief US Investment Strategist Doug Peta said in a note to clients that the three rate cuts this year leaves monetary policy easy.
“A recession can’t begin until the Fed reverses those three cuts and, per our estimate of the equilibrium rate, tacks on at least three additional hikes,” he wrote.
This means there is scope for further gains for the S&P 500.
“Over the last 50 years, the S&P 500 has peaked an average of six months before the start of a recession, and returns heading into the peak have been quite strong,” he wrote.
Markets fell on Tuesday.
The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.1 percent.
The Federal Reserve kicked off its two-day monetary policy meeting on Tuesday where it is expected to hold steady on interest rates.
“The question will be how dovish is the ‘hold’ that the Fed will deliver tomorrow,” said Jim McDonald, chief investment strategist at Northern Trust.
While not much is expected from the Fed now, Zoltan Pozsar, Credit Suisse’s managing director for investment strategy and research, has suggested that the Fed will be launching another round of quantitative easing in the next few weeks.
“If we’re right about funding stresses, the Fed will be doing ‘QE4’ by year-end,” Pozsar wrote in a note to clients. “The Fed’s liquidity operations have not been sufficient to relax the constraints banks will face in the upcoming year-end turn.”
Markets were mostly lower on Monday.
The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.2 percent but the Nikkei 225 rose 0.3 percent.
Friday's strong US employment report lost some of its impact on the market despite relieving some recession fears.
“The recession fears that pervaded much of the year are fading, replaced by a sense that economic indicators are bottoming,” wrote JPMorgan & Co. analysts in their 2020 equity outlook released on Monday.
However, with the 15 December deadline for the imposition of additional US import duties on Chinese goods looming, investors remained focused on trade issues.
Robert Pavlik, chief market strategist at SlateStone Wealth, said there is “a lot of uncertainty” but “people are not running for the hills”.
Still, the impact of the US-China trade war was noticeable on Monday, at least on China, the latter reporting that exports fell 1.1 percent in November from a year earlier, with shipments to the US falling 23 percent.
Markets rose on Friday.
The S&P 500 rose 0.9 percent, the STOXX Europe 600 jumped 1.2 percent and the Shanghai Composite rose 0.4 percent.
Markets were boosted by a report that the US economy added 266,000 jobs in November, the biggest gain since January.
“This is a blowout number and the U.S. economy continues to be all about the jobs,” Tony Bedikian, head of global markets for Citizens Bank, said in a note.
“Today’s job report, more than any other report in recent months, squashed any lingering concerns about an imminent recession in the US economy,” said Gad Levanon, head of the Conference Board’s Labor Market Institute.
Michelle Meyer, Bank of America Merrill Lynch’s chief US economist, said that “the strong employment activity suggests that the economy is in a better spot than previously thought to withstand any potential drag from the US-China trade war and other geopolitical risks in the outlook”.
Another report in the US on Friday showed that the University of Michigan’s consumer-sentiment indicator rose to 99.2 in December from 96.8 in November.
Markets were mostly higher on Thursday.
The S&P 500 rose 0.2 percent and the Nikkei 225 rose 0.7 percent. However, the STOXX Europe 600 dipped 0.1 percent.
Investors remained focussed on the trade war between the US and China ahead of the 15 December deadline for the imposition of fresh import tariffs on the latter's goods by the former.
“We see a relatively good chance that there’s a sort of first phase deal and maybe the December tariffs get pushed out or actually even removed,” said Adrian Zuercher, head of Asia-Pacific asset allocation at UBS Global Wealth Management.
Meanwhile, data in the US showed that factory orders rose 0.3 percent in October, the first gain in three months.
Attention now shifts to the US monthly payrolls report.
“Should the jobs report come in reasonably healthy and the trade negotiations keep moving forward, December will also likely be a better month than the headlines at the start of the month suggested,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.
Markets were mixed on Wednesday.
The S&P 500 rose 0.6 percent and the STOXX Europe 600 rose 1.2 percent but the Nikkei 225 fell 1 percent.
US economic data on Wednesday were mixed.
ADP private sector employment report showed job growth of 67,000 in November, well below forecasts and the smallest increase since May.
Another report showed that the Institute for Supply Management’s nonmanufacturing index fell to 53.9 in November from 54.7 in October.
However, IHS Markit's services PMI showed a rise to 51.6 in November from 50.6 in October.
Nevertheless, Jeffrey Gundlach, CEO of DoubleLine Capital, thinks that a downturn is more a question of “when” than “if”.
Gundlach thinks that when the next downturn hits, there will be a crisis in the corporate bond market, with “en masse downgradings”, and recommended that “corporate bond exposure should be at absolute minimum levels right now”.
Gundlach also thinks that among stock markets, “when the next recession comes, the United States will get crushed, and it will not make it back to the highs that we've seen, that we're floating around right now, probably for the rest of my career”.
Markets fell on Tuesday.
The S&P 500 fell 0.7 percent, its third consecutive decline, the STOXX Europe 600 fell 0.6 percent and the Nikkei 225 fell 0.6 percent.
Stocks fell after US President Donald Trump said that it might be “better to wait until after the election” before concluding the US-China trade talks.
Some analysts think that the US stock market's record-breaking run had left it vulnerable to a sharp reversal.
“When everyone is leaning one way, eventually something can tip the scales the other way,” said Keith Lerner, chief market strategist at SunTrust. “The biggest risk to the market is that the trade stuff starts unraveling.”
“Something that goes straight up, usually goes straight down,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Still, some analysts think that easy money from the Federal Reserve will help keep stocks up.
“Any pullback would likely be very short-lived given how accommodative Fed policy is,” said Kristina Hooper, chief global market strategist at Invesco.
Also, Mark Hulbert at MarketWatch said that Hayes Martin, president of Market Extremes, has noted that most of the market’s sectors have participated in the market’s recent runup to new highs.
“Crashes or bear markets do not occur under conditions of high liquidity and strong internals,” Martin said.
Markets were mostly lower on Monday.
The S&P 500 fell 0.8 percent, the STOXX Europe 600 plunged 1.6 percent but the Nikkei 225 rose 1.0 percent.
US stocks were weighed down by a report from the Institute for Supply Management showing that its manufacturing index unexpectedly fell to 48.1 in November from 48.3 in October.
However, a separate report from Market showed that its manufacturing PMI rose to 52.6 in November from 52.2 in October.
Meanwhile, China's manufacturing sector improved in November. After the National Bureau of Statistics reported over the weekend that its manufacturing PMI rose to 50.2 in November from 49.3 in October, a report on Monday showed that the Caixin/Markit manufacturing PMI rose to 51.8 in November from 51.7 in October.
Recent economic data have been positive enough for Deutsche Bank to conclude in a new report: “There are signs that the global economy is bottoming out. We now expect an improvement in global growth next year.”
“Key to our optimism is that the risks of trade wars and Brexit are evolving in positive ways,” the Deutsche Bank team said.
However, Monday brought more news suggesting that trade risks remained, this time with US President Donald Trump announcing that he would restore tariffs on all steel and aluminium that is shipped into the US from Brazil and Argentina for “presiding over a massive devaluation of their currencies”.
The S&P 500 rose 1 percent last week as investors pinned their hopes on an imminent completion of a phase one trade deal between the US and China.
However, that hope receded a little in the latter part of the week after US President Donald Trump signed legislation supporting Hong Kong protesters on Wednesday.
In addition, China’s Global Times newspaper reported on Sunday that Beijing wants the US to remove existing tariffs as part of the deal, something that the latter have so far resisted agreeing to.
Still, John Tobey noted in his Forbes column that the US economy is looking durable despite risks from the trade war.
Therefore, while many investors are worried about slowing economic growth, Tobey suggested that investors take a contrarian stance and look for opportunites to buy stocks in December.
“The goal is to have a desirable stock portfolio heading into 2020 because economic growth and a bull market are coming,” he said.
Markets fell on Friday.
The S&P 500 fell 0.4 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.5 percent.
Oil fell. West Texas Intermediate crude plunged 4.4 percent while Brent fell 2.5 percent.
Markets were weighed down by concerns that a US-China trade deal may be in jeopardy after US President Donald Trump signed legislation supporting Hong Kong protesters on Wednesday.
Still, BCA Research concluded in a recent analysis: “Stocks can still defy elevated multiples.”
BCA believes that a recession will happen “in the next 24 months or so” but that still leaves time for the bull market to make one last lurch upward.
While the US stock market was closed on Thursday, markets elsewhere fell.
The STOXX Europe fell 0.1 percent, the Shanghai Composite fell 0.5 percent and the Nikkei 225 fell 0.1 percent.
Markets were weighed down by concerns that US-China relations will deteriorate further after bills backing protesters in Hong Kong were signed into law by US President Donald Trump on Wednesday.
However, analysts remain hopeful that an anticipated “phase one” trade deal between the US and China will still be concluded.
“I think at the moment, right now, the markets are still giving the benefit of the doubt,” said Ken Wong, Asia equity portfolio specialist at Eastspring Investments. “The markets are anticipating, hopefully in the next couple of months, we do get an agreement in place.”
Markets rose on Wednesday.
The S&P 500 rose 0.4 percent to another record high while the STOXX Europe 600 and the Nikkei 225 rose 0.3 percent.
US economic data on Wednesday were positive, with the Federal Reserve's latest Beige Book in particular noting that the economy “expanded modestly”.
“We can be thankful that the economy is still in a good place with economic growth a little better, a rebound in business durable equipment expenditures, and a sharp decline in joblessness which together tell the story that recession is nowhere to be seen and should not be on anyone’s radar in 2020,” MUFG chief economist Chris Rupkey said.
However, some investors think that stocks outside the US will perform better in 2020.
According to Investment Company Institute data, world stock funds brought in US$8.2 billion in investor inflows over the last two weeks while US equity funds lost more than US$10 billion in outflows.
Thomas Banks, a portfolio manager for the Federated International Small-Mid Company fund, suggested that the higher valuations for US stocks that were supported by faster growth rates could weigh on their performances as “the divergent growth rates could converge again”.
Markets rose on Tuesday.
The S&P 500 0.2 percent to close at another all-time high, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.4 percent.
“With global central banks pumping liquidity into the system and investors sensing that a trade deal is coming, that could create more upside,” said Yousef Abbasi, director of US institutional equities at INTL FCStone.
Indeed, an analysis by Qontigo subsidiary Axioma suggests that market sentiment has become extremely bullish.
“With sentiment this strong, Wednesday’s data releases on third-quarter GDP and personal spending would have to come in well below consensus to shake investors confidence,” said Olivier d’Assier, head of applied research at Axioma. “On the other hand, even a slight beat on forecasts is likely to be met with an over-reaction on the upside.”
However, some analysts think that investors may be underestimating the chances of a recession in 2020.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, noted that even as the S&P 500 has been rallying, the economic data “have not been encouraging”.
Tom Essaye, president of the Sevens Report, said that it is “notable” that first-time claims for jobless benefits are rising while the yield curve “has begun to compress, relatively rapidly”.
Jeffrey Schulze, an investment strategist at ClearBridge Investments, puts the chances of a recession in 2020 at 50 percent, based in large part on the inversion of the yield curve earlier this year and the sharp slowdown in manufacturing.
Markets rose on Monday.
The S&P 500 rose 0.8 percent to a new record, the STOXX Europe 600 rose 1.0 percent and the Nikkei 225 rose 0.8 percent.
Despite the US stock market already sitting at record highs, JP Morgan said 2020 could be another strong year for stocks.
JP Morgan analyst Nikolaos Panigirtzoglou said that after a strong performance by stock markets this year, retail investors are likely to respond by turning into big buyers of equity funds in 2020.
“This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors,” said Panigirtzoglou.
However, the US elections could have a significant impact on the stock market.
“In the United States, equity returns during periods of divided federal government have typically exceeded returns achieved when one political party controls the White House, Senate, and House of Representatives,” wrote analysts at Goldman Sachs in a Monday note.
Tim Moe, Goldman’s chief Asia-Pacific equity analyst, said that a unified Democratic government in particular could result in a rollback of the 2017 corporate tax cut and spark “possibly even up to a 20% correction on the S&P”.
Julian Emanuel, chief equity and derivatives strategist at BTIG, noted that fear of a unified government outcome in the 2020 elections “is substantial at the same time that confidence, so very important to markets and economies, remains fragile albeit stabilizing”.
The S&P 500 fell 0.3 percent last week, ending a run that saw it gain for six consecutive weeks.
Michael Santoli at CNBC suggested that short-term trader sentiment had become “a bit too bullish” and as a result, the stock market had become overbought.
Nevertheless, Santoli added: “The basis of the rally since August remains plausible: that economic and corporate profits growth is troughing, the Fed has eased deftly off the brake with three rate cuts, credit conditions are fine, the Treasury yield curve is back to a normal slope, seasonal forces are favorable and big investors underinvested and prone to chase stocks higher.”
The Federal Reserve in particular may be “juicing the stock market”.
After a spike in overnight lending rates in September, the Fed pumped in lots of cash into the financial system, causing its balance sheet to swell by US$286 billion since early September to US$4.05 trillion.
“It's patently obvious that the Fed's interventions into the market is having a huge effect on the stock market,” said Danielle DiMartino Booth, a former Fed official who is now CEO of Quill Intelligence.
“Markets view any increase in the size of the Fed's balance sheet as QE and the $250B increase in just two months is no doubt helping to lift stock prices,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Markets rose on Friday.
The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.3 percent.
“The rally is intact and with this will go into 2020,” predicted Nick Giacoumakis, president and founder of New England Investment & Retirement Group.
“We think stocks are really rallying because they are the only game in town now that Fed messaging and rate cuts have crushed Treasury bond yields,” said MUFG economist Chris Rupkey.
Economic data on Friday were mixed.
IHS Market reported that its flash US manufacturing purchasing managers index rose to 52.2 in November from 51.3 in October while its US services purchasing managers index rose to 51.6 from 50.6.
However, IHS Markit's eurozone composite purchasing managers index fell to 50.3 in November from 50.6 in October.
Markets fell on Thursday.
The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.5 percent.
Hopes for a US-China trade deal were bolstered by reports that China’s chief trade negotiator Liu He has invited his US counterparts for more talks.
However, the passage of a Hong Kong human rights bill by the US Congress could yet threaten the talks, with Chinese Foreign Ministry spokesman Geng Shuang saying Beijing “condemns and firmly opposes” the move.
Height Securities analyst Clayton Allen said in a note that “it seems entirely possible that any Chinese retaliation would be enough to upend negotiations as Trump tries desperately to maintain the upper hand in leverage”.
Markets fell on Wednesday.
The S&P 500 and the STOXX Europe 600 both fell 0.4 percent while the Nikkei 225 fell 0.6 percent.
Market sentiment was dampened by a report that completion of a “phase one” US-China trade deal could be delayed until next year.
“What we’re seeing in the market today is another reminder that tariffs reign supreme,” said TD Ameritrade chief market strategist JJ Kinahan.
Meanwhile, economic news on Wednesday was negative, with Japan reporting that exports fell 9.2 percent year-on-year in October, the worst decline in three years.
Markets were mixed on Monday.
The S&P 500 rose less than 0.1 percent, the Nikkei 225 rose 0.5 percent and the STOXX Europe 600 was flat.
Renewed doubts over a trade deal between the US and China kept market gains down.
“We had been up in the premarket overnight, and the market turning lower goes to show that investors should take trade optimism with a grain of salt,” said Lindsey Bell, chief investment strategist with Ally Invest.
Meanwhile, a report from the National Association of Home Builders on Monday showed that its housing market index fell 1 point to 70 after hitting its highest level of the year last month.
However, some analysts are concerned that with few signs of an economic rebound, the market may have gotten ahead of itself.
“We quickly went from the consensus thinking we were on the cusp of recession and investors being very, very cautious, buying up the quintessential safe havens, to a much more risk-on, bullish economic view,” said Douglas Cohen, portfolio manager at Athena Capital Advisors, in an interview. “In the short term, that’s gone a bit too far and sets us up for at least a pause, and my guess is in 2020 sentiment will start to become more fragile and volatile.”
The S&P 500 rose 0.9 percent last week for its sixth consecutive weekly gain.
Year-to-date, the S&P 500 is up 24.5 percent and sits at an all-time high.
Julia Horowitz at CNN Business sees a case for more stock market records.
“Sentiment is improving — allowing markets to continue pushing higher and higher,” she wrote.
Horowitz said that one month ago, CNN Business' Fear and Greed Index had a “neutral” reading. Now it is showing “extreme greed”.
At the same time, economists are becoming more optimistic about the economy.
“We see no economic reason for a recession in the advanced world in the next two years,” Berenberg economists said in a note to clients on Friday.
Similarly, Bob Pisani at CNBC noted that as the S&P 500 set record highs, euphoria has been growing.
Some technicians “have been positively giddy recently” while strategists and retail investors “are gaga with enthusiasm”.
However, he also sounded a note of caution.
“All this euphoria would be great if we were coming off of a big sell-off — but we’re not,” he wrote. “The major indexes are at new highs as is the advance/decline line. Put it all together, and the market is clearly overbought.”
Indeed, Oxford Economics thinks that US stocks are overvalued by around 35 percent.
“The twin pressures of weak pricing power and low productivity imply a bleak outlook for margins – warning signs of a market that seems to have got ahead of itself,” an Oxford Economics team wrote.
Markets mostly rose on Friday.
The S&P 500 rose 0.8 percent to a fresh record high while the STOXX Europe 600 rose 0.4 percent. Earlier in Asia, the Nikkei 225 rose 0.7 percent but the Shanghai Composite fell 0.6 percent.
Stocks rose as White House economic adviser Larry Kudlow suggested that a “phase one” trade deal between the US and China was close, with negotiations making “very good progress”.
US economic data released on Friday were mixed though.
US retail sales rebounded in October, rising 0.3 percent after a 0.3 percent decline in September.
However, US industrial output fell 0.8 percent in October, the worst in 17 months.
MUFG chief economist Chris Rupkey remarked that “the economy looks rockier with the manufacturing recession deepening and consumers spending less this quarter than they did earlier in the year”.
Markets were mostly lower on Thursday, with MSCI’S All-Country World index fallingt 0.11 percent.
However, the S&P 500 managed to gain 0.1 percent to record another new high.
According to Kristina Hooper, chief global market strategist at Invesco, investors are becoming concerned that the “phase one” trade agreement between the US and China, which had appeared to be imminent, is now instead looking to be “on shaky grounds”.
A report on Thursday showed that Chinese industrial production growth slowed sharply in October, with the 4.7 percent year-on-year rise well below forecasts for 5.4 percent.
Another report showed that the German economy grew just 0.1 percent in the third quarter.
Meanwhile though, technical strategists see potential for much higher US stock prices.
“We believe a continued unwind of crowded defensive positioning that reached its zenith in August can carry the rally through the fourth quarter,” said JP Morgan technical strategist Jason Hunter.
Markets were mixed on Wednesday.
The S&P 500 rose 0.1 percent to a record high but the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.9 percent.
Marios Hadjikyriacos, investment analyst at XM, said that “with markets having gone on a euphoria rally lately, it might not take much bad news to trigger a notable correction”.
In a testimony before the US Congress, Federal Reserve chairman Jerome Powell said that the central bank sees “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective”.
However, a report on Wednesday showed that US inflation was slightly higher than expected in October, as the consumer price index rose 0.4 percent.
Markets rose on Tuesday.
The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.8 percent.
Results of a survey by Bank of America Merrill Lynch released on Tuesday showed that fund managers have made a huge switch from cash into stocks.
“Investors are experiencing Fomo—the fear of missing out—which has prompted a wave of optimism and jump in exposure to equities and cyclicals,” said Michael Hartnett, chief investment strategist at BAML.
Technical research strategists at Bank of America Merrill Lynch support the optimism.
“Last week’s push above SPX 3,063 is an uncomfortable breakout for many who viewed the SPX pattern as bearish,” the strategists, Stephen Suttmeier and Jordan Young, wrote.
“History suggests that breakouts from these ranges should be powerful,” they added.
Markets were mostly lower on Monday.
The S&P 500 fell 0.2 percent, the STOXX Europe 600 was flat and the Shanghai Composite plunged 1.8 percent.
Investor sentiment was dampened by comments by US President Donald Trump over the weekend that recent reports about an agreement to roll back tariffs were not accurate.
“There was a lot of incorrect reporting,” he said. “The level of tariff lift is incorrect.”
Amid high levels of optimism in the markets, the persistent uncertainties over a trade deal could lead to a correction, according to a CNBC report.
“With a full-blown trade agreement still likely many months out into the future if at all, it’s a little hard for me to take there’s this much optimism,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
“The short-term risk is elevated for a pullback in equities and a material advance in volatility,” said Andrew Thrasher, founder of Thrasher Analytics.
Still, DataTrek co-founder Nicholas Colas thinks that stocks still have lots of room to advance.
“2019’s no-growth earnings will make for easy [comparables] in 2020 if the U.S.-China trade war abates,” he wrote on Monday. “Unless U.S.-China trade talks hit a large pothole in coming weeks, that’s the narrative that should continue to drive US equity prices higher through the end of the year.”
The S&P 500 rose 0.8 percent last week, its fifth consecutive weekly gain, and ending on a record high.
Many analysts see further gains for the S&P 500.
Barry Bannister, head of institutional equity strategy at Stifel, sees the rally in stocks lasting until next year.
“The Federal Reserve, by shrinking its balance sheet, and the White House, by pursuing a trade war, skated very close to the edge of the ice and risked a recession. Both are backing off and that’s positive for global sentiment,” said Bannister.
Michael Santoli at CNBC said that the “weight of the evidence points in the more positive direction, based on the global scope of the rally, the cyclical sectors leading the way and the rapid repricing of bonds that have yields emerging from historic depths toward more normal but still unthreatening levels”.
Bill Stone, chief investment officer and managing director at Avalon Investment & Advisory, told CNBC that the major stock indices are likely to rally to even higher highs.
“[R]otation has kicked in. We’ve gotten much more of the cyclical names, the value names, acting better. I think that can help take us to new highs,” he said.
Markets were mixed on Friday.
The S&P 500 rose 0.3 percent to a new high but the STOXX Europe 600 fell 0.3 percent.
In Asia, the Nikkei 225 rose 0.3 percent but the Shanghai Composite fell 0.5 percent.
Investor sentiment was dented somewhat by US President Donald Trump's comment on Friday that he has not agreed to roll back US tariffs on imports from China, renewing concerns that the "phase one" trade pact could still fall apart.
Still, some analysts remain optimistic about the stock market.
“We maintain a significant and incrementally larger tilt in our model portfolio towards risky assets, based on signs of a cyclical recovery, easing geopolitical tensions, synchronized monetary easing, and defensive investor positioning across asset classes,” wrote JP Morgan's strategy team led by Marko Kolanovic.
Meanwhile, Tom Lee of Fundstrat Global Advisors raised his year-end S&P 500 target to 3,185, an increase of 60 points.
Markets rose on Thursday.
The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.1 percent.
Markets were boosted by a report that China and the US will cancel planned tariffs on each other’s products in stages.
The US 10-year Treasury yield rose to a three-month high of 1.924 percent on Thursday.
“Bond yields are up enormously,” he told MarketWatch. “I think that’s bullish and I think that suggests that the U.S. economy is doing better.”
Markets were mostly higher on Wednesday.
The S&P 500 rose 0.1 percent while the STOXX Europe 600 and the Nikkei 225 rose 0.2 percent.
A report that said an interim trade deal between the US and China could be delayed until December deflated market sentiment somewhat.
“The market may take a breather from here,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Stephen Innes, market strategist at AxiTrader, said that “with delay comes chance that risk-on sentiment has too long to ferment, stalls and then maybe reverses as the waiting game weighs”.
Indeed, Samantha LaDuc, founder of LaDucTrading and chief investment officer of LaDuc Capital LLC, wrote on MarketWatch that “there is very little reason to expect a breakout with follow-through but more likely a breakdown”.
“I suspect bonds are about to roll over, structurally force yields to pop, then oil spikes with reflation trades, while momentum stocks are sold off because they’re overvalued relative to value plays …and the result is the stock markets correct,” she wrote.
Markets were mixed on Tuesday.
The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 jumped 1.8 percent.
The yield on the US 10-year Treasury note rose 6.5 basis points to 1.853 percent.
Economic data on Tuesday were mixed.
The Institute of Supply Management’s US service sector activity index rose to 54.7 in October from 52.6 in September but IHS Markit’s US service sector purchasing managers index fell to 50.6 from 50.9.
The Caixin/Markit China services purchasing managers’ index for October came in at 51.1, the lowest in eight months.
“The stabilization of the fundamentals, both economic and corporate, should provide a cushion to any volatility,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “Overall, the prospect for November is less worrisome than where we started October.”
Less sanguine is Lori Calvasina, RBC Capital Markets’ head of US equity strategy.
“The new thought we offer this week is that we haven’t learned anything in the current reporting season that justifies euphoric positioning and peak valuations,” Calvasina wrote in a note.
Markets rose on Monday.
The S&P 500 rose 0.4 percent to another record high, the STOXX Europe 600 rose 1.0 percent to its highest level since 15 April 2015, and the Shanghai Composite rose 0.6 percent.
The US 10-year Treasury yield rose 5 basis points to 1.782 percent while West Texas Intermediate crude jumped 3.7 percent.
Keith Buchanan, senior portfolio manager at Globalt Investments, said: “The angst over trade is subsiding and, from an earnings standpoint, corporations are beating a lowered hurdle, while guidance for next year has been better than feared.”
In Europe, analysts at Goldman Sachs attributed the better market performance partly to “monetary support” but Nikol Hearn, macro strategist at TS Lombard, said that “we can’t ignore that the earnings factor is still deeply in contractionary territory, particularly for Germany”.
The S&P 500 rose 1.5 percent last week to end at a record high.
Despite the latest run, Mark Hulbert at MarketWatch noted that the US stock market appears to have become slightly less overvalued since September 2018.
Hulbert said that while the price/earnings ratio for the market is slightly higher than in September 2018, “the majority of the other valuation indicators I monitor are slightly lower today”.
Still, Hulbert said that US stocks “remain more overvalued today than at almost every other bull market top of the past century”.
Even long-time bull and Edward Yardeni, president of Yardeni Research, seems to think that the market is getting too expensive.
In an interview with CNBC, Yardeni said that the S&P 500 forward earnings multiple is now 17. The historic norm is 15 to 16.
If the multiple reaches 19 or 20, Yardeni said that the market could experience a “nasty correction”.
Still, Yardeni remains bullish for the longer term and has a target of 3,500 for 2020.
Markets were mostly higher on Friday, with the S&P 500 rising 1.0 percent to another record high.
Elsewhere, the STOXX Europe 600 rose 0.7 percent but the Nikkei 225 fell 0.3 percent.
US stocks were boosted by the employment report for October, which showed a better-than-expected gain of 128,000 new jobs and upward revisions for the numbers in August and September.
JJ Kinahan, chief market strategist at TD Ameritrade, said that the employment data showed “tons of positives” while Steve Blitz, chief US economist for TS Lombard, said they “underscore the Fed’s perception that the economy is in a ‘good place’”.
The Institute for Supply Management’s October manufacturing activity index came in at 48.3 in October, up from 47.8 in September.
“The manufacturing sector weakness appears to be stabilizing after falling below the 50 level and into recession in August,” MUFG chief economist Chris Rupkey, said.
Markets were mostly lower on Thursday.
The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.5 percent but the Nikkei 225 rose 0.4 percent.
US economic data on Thursday were mixed. The Chicago purchasing managers index fell to 43.2 in October from 47.1 in September but consumer spending rose 0.2 percent in September, its seventh consecutive increase.
Bank of America Merrill Lynch economist Ethan Harris said it is too early to call a turn in the economy.
“While there have been a few hopeful signs in recent releases, overall the data are still weakening,” he said.
Meanwhile, China reported that its official purchasing managers index for the manufacturing sector fell to 49.3 in October from 49.8 in September.
However, Lawrence G McMillan is president of McMillan Analysis, is optimistic about the stock market.
“The S&P 500 index broke out to new all-time highs on Monday and confirmed the breakout by continuing to close above the previous all-time highs (3028) for the next two days,” he wrote at MarketWatch. “This brings the S&P chart into a “bullish” status and puts it in line with our other indicators, which have been bullish for some time now.”
The S&P 500 rose 0.3 percent on Wednesday to another record high after the Federal Reserve cut its benchmark fed funds rate by 25 basis points to between 1.50 percent and 1.75 percent.
However, some strategists see stocks plunging in the near future.
"The unfolding profits recession will expose the 'growth' impostors and they will collapse, as they are on the wrong 'growth' PE valuations with the wrong EPS projections," said Albert Edwards of Societe Generale.
Peter Cecchini of Cantor Fitzgerald sees a recession brewing in the manufacturing sector and said that while consumer spending has been propped up by loose lending standards, the latter are "slowly beginning to tighten across the board".
John Hussman, an investment manager and former professor, said he expects "the S&P 500 to lose somewhere between 50-65% over the completion of the current market cycle".
The S&P 500 fell 0.1 percent on Tuesday, one day after hitting a new high.
Nevertheless, Charlie Ripley, senior investment strategist for Allianz Investment Management, noting progress on a trade deal with China, a “supportive Fed” and better-than-expected corporate results, said “we would expect market optimism to continue to improve which is particularly important as we head into the holiday spending season”.
However, UBS lead strategist Francois Trahan falling earnings expectations are a big threat to stocks.
Noting that the consensus year-on-year growth rate in S&P 500 forward earnings has dropped to a 1 percent from a peak of 23 percent in September 2018 he said: “Ultimately, the most vulnerable macro backdrop for equities occurs when forward earnings growth turns negative as LEIs are trending downward (pushing [price-to-earnings] lower).”
Markets rose on Monday.
The S&P 500 rose 0.6 percent to hit a record high. Elsewhere, the STOXX Europe 600 and Nikkei 225 both rose 0.3 percent.
“Binary earning surprises continue to favor the bulls so far this season,” said Jeff deGraaf, chairman of Renaissance Macro Research.
However, the Chicago Fed National Activity Index fell to -0.45 in September from 0.15 In August.
While US stocks are hitting record highs, European stocks have lagged behind their US peers for the past two years but Mislav Matejka, head of global and European equity strategy at JP Morgan, wrote in a note on Monday that this trend will reverse in the coming months.
Matekja said that he cut his overweight rating on US equities to neutral and he now believes “that international stocks will be an outperformer going forward” as “the long downtrend in Eurozone PMIs should be coming to an end”.
The S&P 500 rose 1.2 percent last week on increased expectations of a trade deal between the US and China.
The potential trade deal comes as a group of prominent economists from the US and China called for the world’s two largest economies to abandon their trade war.
In a statement issued in China on Sunday, the group of 37 economists – including Joseph Stiglitz, Michael Spence and three other Nobel winners – argued for a more sensible framework for future trade relations that would give China room to pursue industrial policies while also allowing the US latitude to respond with targeted tariffs if China’s policies were damaging its interests.
Also on Sunday, China’s National Bureau of Statistics reported that industrial profits fell 5.3 percent in September from a year earlier after having fallen 2 percent in August.
Markets rose on Friday.
The S&P 500 rose 0.4 percent to close just 0.1 percent below its record high. The STOXX Europe 600 and Nikkei 225 both rose 0.2 percent.
Market sentiment was boosted by comments by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday that they have made progress on the first phase of a potential US-China trade deal.
“The price action today is due to expectations of a trade deal with China that may in fact take the December 15 tariffs off the table,” said Alicia Levine, chief strategist, BNY Mellon Investment Management.
However, she added that “if the Dec. 15 tariffs remain, 2020 earnings estimates are at risk”.
Kristina Hooper, chief global market strategist at Invesco, said that in the meantime, progress on trade, upbeat earnings and expectations of another Federal Reserve interest rate cut next week are driving the stock market rally, and “investors are not letting a few high-profile earnings misses dictate their assessment about the facts in general”.
Markets rose on Thursday.
The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.6 percent.
A report on Thursday showed that US durable goods orders fell 1.1 percent in September, the largest drop in four months.
US corporate earnings have been more positive, with nearly 80 percent of companies posting results that beat analyst estimates, according to FactSet.
“Thus far earnings have been generally supportive of further progress and a number of potential minefields in the industrial sector have been navigated successfully,” Michael Shaoul, chairman and CEO of Marketfield Asset Management, wrote in a note.
The European Central Bank left interest rates unchanged at its monetary policy meeting on Thursday, the last presided by Mario Draghi, who makes way for Christine Lagarde on 1 November.
Markets mostly rose on Wednesday.
The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.3 percent.
“In an environment of job growth, ultra-low interest rates and central-bank stimulus, this is actually an okay environment and one in which you need to be putting money into stocks because they can continue to go higher,” said Kate Warne, principal investment strategist with Edward Jones.
Indeed, a recent research paper suggests that US interest rates should have been even lower.
San Francisco Fed economist Jens HE Christensen wrote that based on the market response for five central banks that have introduced negative rates, “mildly negative U.S. policy rates from 2009 to 2011 could have supported higher economic growth and eventually pushed up inflation closer to the Federal Reserve’s target”.
On the other hand, former Bank of Japan governor Masaaki Shirakawa wrote that the focus on avoiding deflation by persistent monetary easing is wrong.
He said that the effectiveness of monetary easing derives from bringing forward future demand to the present. “If the economy is faced with a temporary shortfall in demand, this policy works,” he wrote.
However, “if there are bigger structural issues suppressing it -- the very act of monetary easing will make the 'natural rate of interest' fall faster, and eventually it will get stuck,” he said.
Indeed, the US central bank now appears to be needing ever greater liquidity injections to ensure financial stability.
On Wednesday, the New York Fed announced it is increasing its temporary overnight repo operations to US$120 billion a day from the current US$75 billion in an effort to hold the overnight funds rate within its target range.
Markets were mixed on Tuesday.
The S&P 500 fell 0.4 percent but the Shanghai Composite rose 0.5 percent and the STOXX Europe 600 rose 0.1 percent.
US stocks were weighed down by worse-than-expected third-quarter results from McDonald’s and Traveler Cos.
“Earnings have been mixed, but I still believe they’re going to surprise to the upside,” said Ken Engelke, chief economic strategist at Capitol Securities Management.
Brexit remained in the spotlight, with the UK parliament agreeing on Tuesday to consider Prime Minister Boris Johnson’s plan for leaving the European Union but rejecting his aggressive deadline for approving it.
Markets were mostly higher on Monday.
The S&P 500 rose 0.7 percent to come within 0.6 percent of its record high. The STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.2 percent.
“Equities are looking more positively at U.S.-Chinese talks and the potential of a better than expected earnings season showing from major names this week,” wrote Arnim Holzer, macro strategist for EAB Investment Group.
Markets shrugged off news that UK House of Commons speaker John Bercow refused to allow a vote on Prime Minister Boris Johnson’s Brexit deal with the European Union, saying the same issue had been discussed on Saturday.
“The chances of a deal one way or the other are higher than they were two weeks ago, which is why the market is not falling back,” said Rupert Thompson, head of research at asset manager Henderson Rowe.
The drama over the UK's departure from the European Union continued over the weekend.
Members of Parliament voted on Saturday to withhold their backing to the revised withdrawal agreement Prime Minister Boris Johnson struck with the EU last week until the legislation needed to ratify it has passed, forcing him to seek a delay of Brexit beyond 31 October to abide by the law.
Johnson subsequently sent an unsigned letter to European Council President Donald Tusk regarding the delay request, followed by a signed letter stating that he was not seeking an extension to the Brexit deadline.
While Europe remains focused on the Brexit drama, investors in the US may push the stock market to new records this week.
“You’ve got the potential for a combination of things that drive us to new highs,” said Art Hogan, chief market strategist at National Securities.
John Augustine, chief investment officer at Huntington Private Bank, said the “narrative” around trade had gotten “so one-sided to the negative side, there may be a better chance than not that a phase-one deal is signed.”
“If corporate earnings show signs of resilience, especially by the U.S. consumer, then a run to new highs is by no means out of the question,” Tom Essaye, founder of The Sevens Report, said in a note.
“Global leading growth indicators might have bottomed, the Fed appears on track to offer a third “insurance” rate cut, sentiment is cautious and credit still flowing,” noted Michael Santoli at CNBC . “The setup has improved, suggesting it’s now becoming the bulls’ game to lose.”
Markets fell on Friday.
The S&P 500 fell 0.4 percent, the STOXX Europe 600 fell 0.3 percent and the Shanghai Composite tumbled 1.3 percent.
China reported that its economy grew 6.0 percent in the third quarter from a year ago, down from a 6.2 percent pace in the second quarter.
“Unchecked, the US-China trade conflict is set to sink growth well below 6%,” Mizuho Bank’s Vishnu Varathan, head of economics and strategy, wrote in a note.
Markets were mixed on Thursday.
The S&P 500 rose 0.3 percent, the STOXX Europe 600 dipped 0.1 percent and the Shanghai Composite fell 0.1 percent.
European stocks made early gains on the back of an announcement that the European Union and Britain had clinched a deal on the terms of Britain’s exit from the bloc but eventually closed lower.
“Unfortunately, it is too early,” said Michael Bell, Global Market Strategist at JP Morgan.
“It remains to be seen whether the reaction is short-lived as the politicians go toe-to-toe again at the weekend,” said Richard Hunter, head of markets at Interactive Investor.
Markets were mixed on Wednesday.
The S&P 500 fell 0.2 percent and the STOXX Europe 600 dipped 0.1 percent.
Earlier in Asia, the Shanghai Composite fell 0.4 percent but the Nikkei 225 jumped 1.2 percent.
A report showing a 0.3 percent fall in US retail sales in September raised concerns of a slowdown in consumer spending.
The report pushed the probability of an October interest rate cut by the Federal Reserve up to 90.3 percent from 73.8 percent on Tuesday, based on CME Group data.
Interest rate cuts may be all that is keeping some markets up, according to the International Monetary Fund.
“Equity markets appear to be overvalued in Japan and the United States,” the IMF said in its latest Global Financial Stability report released on Wednesday.
“Declines in interest rates have further motivated investors to search for yield by increasing duration and credit exposures, a development that has boosted asset valuations,” it suggested.
It warned that the search for yield is also “creating an environment conducive to a buildup of vulnerabilities”.
Markets were mostly higher on Tuesday.
The S&P 500 rose 1.0 percent, the STOXX Europe 600 jumped 1.1 percent and the Nikkei 225 surged 1.9 percent.
Investors were cheered on Tuesday by a report that an agreement over the UK's exit from the European Union is close.
“One by one the major global risks to U.S. economic growth are falling by the wayside which gives investors the green light to back up the truck and buy lots of stocks,” said MUFG chief economist Chris Rupkey.
John Lynch, chief investment strategist at LPL Financial, said that “better days lie ahead”. He said that the US-China trade war “is unlikely to be resolved anytime soon, but we believe any small steps forward could increase business confidence and spark capital investment, lifting corporate profits”.
Markets were mixed on Monday.
The S&P 500 dipped 0.1 percent and the STOXX Europe 600 fell 0.5 percent but the Shanghai Composite rose 1.2 percent.
Markets gave up some of the gains made after an announcement on Friday that the US and China had reached a partial agreement on trade.
“There was concern optimism might be premature,” said John Carey, a portfolio manager and director of US equity income at Amundi Pioneer Asset Management.
Nevertheless, JP Morgan analyst David Kelly suggested that “the fact that the negotiators were so anxious to announce a deal suggests that both sides now appreciate the damage being done to their economies by the conflict” and “probably reduces the risk of a re-escalation of the war in the months ahead”.
Indeed, Chinese customs data released on Monday showed that in US dollar terms, Chinese exports fell 3.2 percent in September from the previous year while imports declined 8.5 percent.
US President Donald Trump announced on Friday that the US and China have reached a partial deal whereby the latter will purchase between US$40 billion and US$50 billion worth of US agricultural products while the US agreed to suspend a tariff increase on at least US$250 billion in Chinese goods to 30 percent from 25 percent which would have taken place on Tuesday.
The announcement helped push stocks up on Friday but analysts say the deal appears to be more of a “temporary truce”.
“We think the ‘substantial’ first-stage trade deal made by Trump with China looks more like a truce than a genuine deal,” said Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors.
“In terms of the real thorny issues, none of that is thrashed out,” said Mizuho Bank’s Head of Economics and Strategy Vishnu Varathan.
Markets rose on Thursday.
The S&P 500 rose 0.6 percent, the STOXX Europe 600 rose 0.7 percent and the Nikkei 225 rose 0.5 percent.
Sentiment was boosted by US President Donald Trump's tweet that he would meet Chinese Vice Premier Liu He on Friday to advance a trade deal.
Stephen Suttmeier, chief equity technical strategist at Bank of America Merrill Lynch, told CNBC that the market is “building some kind of a base” that “resolves to the upside, meaning going to new highs”.
In contrast, Raoul Pal, co-founder of Real Vision financial television, said that the market is entering a “period of illiquidity” and that a stock selloff may be inevitable.
Markets were mostly higher on Wednesday.
The S&P 500 rose 0.9 percent and the STOXX Europe 600 rose 0.4 percent. Earlier in the day, the Nikkei 225 fell 0.2 percent.
Slowing growth and fears of a possible recession could hold back stocks though.
The latest Allianz Quarterly Market Perceptions Study in the US showed that 50 percent of respondents see a major recession right around the corner, an increase from 46 percent earlier this year.
35 percent of respondents said that now is a good time to invest in the market, down from over 40 percent at the beginning of the year.
Indeed, Stephen Gallagher, the chief US economist for Societe Generale, thinks that an erosion in corporate profit margins will push the US economy into a recession in 2020.
Markets were mixed on Tuesday.
Early in the day, Asian markets rose, with the Nikkei 225 gaining 1.0 percent.
However, western markets failed to sustain the momentum. The STOXX Europe 600 fell 1.1 percent and the S&P 500 plunged 1.6 percent amid concerns that US-China trade talks set to begin on Thursday will fail.
Some support for markets did come from Federal Reserve Chairman Jerome, who said the central bank believes the current economic expansion can be sustained, and that the Fed intends to expand its balance sheet by purchasing short-term US government debt to support overnight bank-to-bank lending.
However, reports of the US blacklisting Chinese companies and imposition of visa bans on Chinese officials involved in the mass detention of Muslims in the Chinese region of Xinjiang weighed on sentiment.
Mike O’Rourke, chief market strategist at JonesTrading, said that while the Fed's move on buying short-term debt was “very QE-like”, the trade-related reports “took the air out of the Fed rally”.
Markets were mixed on Monday.
The S&P 500 fell 0.5 percent and the Nikkei 225 fell 0.2 percent but the STOXX Europe 600 rose 0.7 percent.
European markets rose despite a report on Monday showing that German industrial orders fell 0.6 percent in August.
“The German economy is in the midst of a recession. Today’s data make that clear again,” said Thomas Gitzel, economist at VP Bank Group.
Meanwhile, the risk of a US recession remains low. Results of a survey by the National Association for Business Economics showed that the economy is expected to grow by 2.3 percent in 2019 but slow to 1.8 percent in 2020.
Stocks fell last week. The S&P 500 fell 0.3 percent, its third consecutive weekly decline. The STOXX Europe 600 fell 3.0 percent.
Oil also fell. West Texas Intermediate crude fell 5.5 percent, its biggest weekly decline since the week ended 19 July. Brent fell 4.4 percent.
However, BTIG strategist Julian Emanuel thinks that stocks will resume rallying in the fourth quarter.
“Similar to 1998, where stocks rallied for 18 months (advancing 68%) from the cyclical low to the point of maximum public bullishness, the 3/2000 ‘Tech Bubble Top,’” Emanuel was quoted by MarketWatch as saying, “we expect the current four-month S&P 500 trading range to resolve with new all-time highs as the prospect of higher interest rates... results in fund flows to stocks and the public’s eventual embracing of the ‘most hated bull market of all-time.’”
Markets rose on Friday.
The S&P 500 surged 1.4 percent, the STOXX Europe 600n rose 0.7 percent and the Nikkei 225 rose 0.3 percent.
A report on Friday showed that the US economy added 136,000 new jobs in September.
“This is the classic definition of a ‘Goldilocks’ report,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Markets were mixed on Thursday.
The S&P 500 rose 0.8 percent while the STOXX Europe 600 was flat and the Nikkei 225 plunged 2.0 percent.
A report from the Institute for Supply Management on Thursday showed that its services index fell to 52.6 in September from 56.4 in August.
Similarly, Markit's composite PMI for the euro area fell to 50.1 in September from 51.9 in August as the services PMI declined to 51.6 from 53.5.
MUFG chief economist, Chris Rupkey said that “fears of recession continue to mount”.
Markets fell sharply on Wednesday.
The S&P 500 fell 1.2 percent, the STOXX Europe 600 plunged 2.7 percent and the Nikkei 225 fell 0.5 percent.
“The very weak ISM, weak levels of (capital expenditure) plans, and inversion of parts of the US yield curve suggests a growing risk the US economy falls into recession,” Joseph Capurso, senior currency strategist at Commonwealth Bank of Australia, wrote in a note.
Some technical analysts are also concerned of further downside to the market.
Ned Davis Research chief global investment strategist Tim Hayes noted that the comeback in September is becoming “another round of failure”, pointing to a lack of breadth, slowing equity fund inflows and a failure of the yield curve to steepen.
MKM Chief Market Technician JC O’Hara said “the market is not in the best shape to make new highs from its current position” since “shorter term technical indicators started to show some negative divergences”.
Tribeca Trade Group CEO Christian Fromhertz noted: “On the technicals, you’re losing breadth a little bit … we’re starting to see more groups tilt to the downside.”
Markets mostly fell on Tuesday.
The S&P 500 fell 1.2 percent and the STOXX Europe 600 tumbled 1.3 percent. Ealier in Asia, the Nikkei 225 rose 0.6 percent.
US stocks fell after the Institute for Supply Management reported that its manufacturing index fell from 49.1 in July to 47.8 in August, its worst reading since June 2009.
Following the report, the fed funds futures market is now pricing in a 65 percent chance of a quarter-point rate cut on 30 October compared with 40 percent a day ago.
However, UBS thinks that rate cuts will not save the stock market this time.
“The Fed-easing rallies of the 1990s were made possible by a strong inverse correlation between interest rates and P/Es. This relationship no longer exists today,” UBS equity strategist Francois Trahan said in a note on Tuesday.
