We are a third of the way in 2019 and both the global and domestic stock markets look solid. Most important indices are set to reach new highs – possibly within the next week or two.
But the recovery that started after Christmas has lost some steam. More importantly, however, the fuel that was able to propel the markets beyond the peaks of last year has not yet been released. Moreover, political tensions can bring markets down.
Virtually every market experienced a large run-up in January, partly because investors saw bargains after the ugly slump in the fourth quarter of 2018, the worst quarter for US equities since 2011. Profits have continued since then, but they are & # 39 ; I have been much less dramatic.
In December, the rose or 1% fell on 12 different days; and performed in the same way on 10 separate days. So far in April there have only been two such days for the Dow and one for the S&P 500 and NASDAQ.
The markets in Europe have behaved in the same way and are usually higher.
Germany has increased by around 16%. Despite the ongoing Brexit unrest, the British increase has risen by 11%. increased by 10.4%. India has risen by 8.5%, while Brazil, which is strongly tied to the ups and downs of giant Petrobras (NYSE :), has risen by 7.6%.
The only exception to the pattern is that of China, which is rising 30% this year based on ongoing reports that the United States and China will finally close a deal to end their ongoing, ugly trade dispute. . Shanghai's profit represents a much better performance than the 25% drop the index saw in 2018.
U.S. Market noise and fury, but no real gain since 2017
Every new big rise requires a catalyst that is at least as powerful as the fuel that made US stocks 40% more expensive after President Trump's 2016 election victory: the huge Republican-driven tax cut of 2017.
Unfortunately, that fuel seems to have been spent. In fact, the US stock market has generated a lot of noise and anger since the end of 2017, but not much has moved for all the noise. The Dow falls by 0.7% compared to the peak in January 2018 and by 1.5% compared to the peak on 3 October. The S & P increased by 1.1% compared to the January 2018 peak and by 1.2% compared to the highest peak of 52 weeks on 21 September. The NASDAQ increases by 5.4% compared to a peak in March 2018 and by 1.7% compared to the 52-week peak on Aug. 30.
But even if the indices rise above the highs of last fall, technical factors will generate strong sales pressure
So, is there a catalyst that could match the impact of the 2017 tax cut? Perhaps.
Low interest rates. It is now around 2.5%, less than 2.69% on December 31. The Federal Reserve has said that concerns about domestic and global growth are likely to curb interest rates this year. However, if Friday's strong report is an indication, the US economy may be stronger than the Fed thought. A few analysts believe that the Fed may run up.
A trade agreement in China. Such an agreement is already priced in markets. However, the details of the deal, especially the enforcement mechanisms, can be a major catalyst. If they are absent, investors will not be happy.
A new wave of mega dealers making Wall Street and institutional investors drool. Low interest rates would make financing easy. And the continued repurchase of shares will contribute to the support of fish stocks.
Large profits from upcoming technology IPOs in particular Uber (NYSE :), were able to spread across Techland unless investors decide a 60% profit because the 2016 elections make it too expensive.
Nevertheless, four potentially large headwinds can be a catalyst of a different kind and must be viewed.
Brexit is a mess for Britain and the uncertainty weighed on Europe.
Oil and gasoline prices are rising largely because Saudi Arabia wants to see crude oil at $ 80 or higher to finance the internal economy. Moreover, the Trump administration wants to seriously limit Iran's exports, believing that Iran's capacity to support terrorist efforts in the Middle East and elsewhere will be hampered. Crude oil moved 2.5% higher early Monday after The Washington Post reported that the United States will announce later today that Japan, Turkey, South Korea, China and India have said they cannot import Iranian oil after 2 May without facing to become with American sanctions. West Texas Intermediate, the US benchmark, has now risen nearly 45%. increased by 37% from year-to-date. US retail prices are rising 25% by around $ 2.85 per gallon, with California gas prices of more than $ 4, say AAA data.
Where the dollar goes. Relatively stable this year, an increase in US exports would become more expensive for foreign buyers and would result in reported profits from US-based companies. Equally important, crude oil is priced in US dollars, and a rising USD would be a burden to oil importers.
The US election in 2020. The campaign started approximately as soon as the 2016 elections ended. As the reactions to the Mueller report at the weekend indicate, a lot of emotional blood will be released.
