Markets dipped a toe into the bullish end of the pool earlier this week after hearing news that talks were moving in a positive direction between China and the US. What were those talks about? An end to this harrowing trade war. This public sentiment was buoyed by National Economic Council Director Larry Kudlow’s comments on Tuesday. He said that Trump’s Administration is taking part in “a lot of communication with the Chinese government at all levels” prior to the G-20 summit this coming December.
"We were at a total standstill before,” Kudlow continued. “Nothing was going on."
The once frigid atmosphere that surrounded the talks has thawed significantly in recent weeks in anticipation of a meeting between President Trump and Chinese President Xi Jinping taking place several days from now. In light of the Dow’s gain of 4.11% since Monday, the markets are feeling tentatively optimistic. In addition to the Dow, the S&P 500 and Nasdaq also both rose by roughly 3%, despite concerns over FANG stocks.
Markets Remain Volatile For Fear Of A Bad December
Investors are battening the hatches in anticipation of a stormy trading month this December. With important meetings and massive policy shift in the upcoming weeks, those upcoming weeks may determine the fate of both 2018 and 2019.
December is an eventful month. Trump and Xi will be having talks face-to-face, the G-20 summit will be taking place in Argentina, Jerome Powell, the Fed Chairman, will be making a speech in regard to interest rate hikes, Brexit, and Italian budget tweaks within the EU.
Should the outcome of these events be positive the stocks could benefit greatly. However, should those events go against the bulls, we may be looking at next year being the year of the bear.
"The whole year comes down to the next few weeks," said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management. "Most of what's happening is geopolitics-related If we can get clarity on any of those things (tariffs, Brexit, the Italian budget), especially tariffs, that would be positive for the market."
Interest Rates May Eliminate Any Gains Made Recently
Should Xi and Trump reach a new trade agreement we may see a Christmas Miracle in the form of an end of year rally. But even if the bulls win out, which will be good for Brexit and for Italy’s talks with the EU, the Fed may snatch away their happy Christmas.
If Powell’s tone proves to be less aggressive in addition to a positive end to this trade war, we may see a new all-time-high for the S&P and Dow.
However, should Powell stick to his original plan, any rally made by the Trump-Xi talks may fizzle out fast, leaving the bears on top for 2019.
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