November 2019 saw U.S. stocks benefit from continued speculation surrounding the possibility of a U.S. – China trade deal. Positive comments such as, ‘trade talks progress’ and ‘we’re close to a deal’, blindly pushed U.S. stocks to all time new highs!
The DOW, S&P 500 and the Nasdaq all became record breakers… again!
Recession – what recession?
Strange really – just 6 weeks or so ago, much of the media speculation was about recessionary fears and global slowdown, and yet here we are with all three major U.S. indices basking in the sunshine of new highs!
Why?
What has really caused the markets to move like this?
- Is it economic news and data? Yes!
- Politics? Sometimes.
- Company performance – Yes!
- Fed monetary policy – Yes, definitely!
- Speculation and rumour – oh Yes, for sure!
- President Trumps tweets – Yep – you bet!
Record breakers
We witnessed market gains and record breaking highs primarily based on ‘speculation’, bets that a U.S. – China trade deal is imminent.
Most, if not all of the market increases are speculative bets based on ‘wishful’ expectations that a deal is soon to be done – even if it is just part of the overall picture (phase one – whatever that maybe).
Old fears – short memory
We’ve moved on very quickly from the fear of inverted yield curves, repo rate liquidity issues and global slowdown concerns. New highs are all the new rage now!
The Fed’s helping hand
Positive economic news has also assisted these market moves. We saw a better than expected U.S GDP revision, better than expected company trade reports, better employment figures but the main catalyst for market movement has been trade talks.
Trade deal hysteria has single-handedly pushed the markets to these new highs with a little (a lot of) help from the Federal Reserve with free money flow and interest rate reductions.
Deal or no deal
If this deal doesn’t materialise soon, or live up to the ‘markets’ expectations – I think we will see a substantial correction. But sensible reasoning doesn’t seem to have a place in this exuberant and euphoric market.
Most of the market increases this year can be attributed to the promise of a trade deal. Much is depending on it!
And then there’s December and Santa?
Let’s blindly go where no one has gone before – or have they?
End.