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.
