Call it a kind of trade truce.
U.S. and Chinese trade authorities agreed Thursday to a plan that would roll back existing tariffs on each side’s goods, marking a meaningful step in the ongoing dispute and pushing stocks to record highs.
Experts said the move would undoubtedly boost the U.S. stock market in the near term but weren’t exactly sounding the “all-clear” signal on next year.
Here’s what three market specialists had to say about the move:
Kathryn Rooney Vera, head of global macroeconomic research and investment strategy at Bulltick Capital Markets, called this the market’s ideal “melt-up scenario”:
“This is the melt-up scenario. So, no more U.S. recession; that’s certainly now consensus. It wasn’t only six to 12 months ago. Consensus was for a U.S. recession. Now, there is no U.S. recession — that’s been my view for the past year — you have the Fed cutting and you have a trade deal. So, those three things are what took down the markets December of last year. Now, we have the melt-up scenario. Those are the three factors that needed to happen on a positive bend to get markets higher. Markets are going higher … through year-end. I think, however, that 2020 is going to present a lot of potential downside. That is why I continue, even at these levels and with the collapse in the VIX, the Volatility Index, to protect positions. I think there’s a lot of complacency in the markets right now and I think there’s a lot of inherent risks going into the next few years.”
Scott Wren, Wells Fargo Investment Institute senior global equity strategist, said investors should be cognizant of one under-the-radar trend with their peers as trade tensions subside:
“3,030 is the year-end midpoint for us for the S&P 500 of our target range, so we’re just above the top end of that. I think stocks are pretty close to fair value and, … clearly, the market has anticipated some trade positives coming in. I’m not sure the market has anticipated, let’s say, a rollback of the September tariffs. Certainly, [it] has anticipated the December ones not coming online. I think that’s probably a good way to think about it. And, really, between now and year-end and maybe now and the beginning of the year, while we might be at fair value now, you have to remember there’s a lot of investors, whether they’re pros or retail investors, they are underinvested here. And, for us, the question is, if we get some kind of a reasonable trade deal — it doesn’t have to be great, [but] a reasonable one — does that bring the chasers in who are underinvested? Because if you’re a professional and your benchmark’s the S&P 500, you cannot sit here on your hands and watch the market run higher. Now, of course, if these trade talks fall apart and everybody walks away, our year-end target’s going to probably be too high. But, certainly, I think it’s proper to lean toward some type of minor trade deal coming through and, I think, as I said, the magnitude here going into year-end is probably going to come down to how much chasing are we going to see from people who are underinvested?”
Andrew Slimmon, head of the applied equity advisors team at Morgan Stanley Investment Management, flagged a few groups he figured would do especially well into year-end:
“The reality of the election is if the economy’s doing well, we re-elect the sitting president regardless of what party he’s from. I think [with] the Fed cutting rates [and] the China trade deal, we will have a strong economy next year and the market will reward that for a while. However, my job is to get ahead of it. I was on in September; I said I think the market’s going to break out in the fourth quarter. I think the next speed bump … is that you’ve got to understand the sequencing of the primaries. The early primaries are going to go towards the more left-leaning candidates the market isn’t going to like, and Super Tuesday is not for a good month later. So, I think that’s a speed bump, but I think the markets will be higher next year because the economy will be stronger. Whether this chase into year-end — and that’s what I think it is — [plays out], I don’t think people are going to buy utilities, REITs and consumer staples. They are going to buy financials because they’ve lagged — although now they’re getting a little overbought — and I think they’re going to come back into technology, which recently has sold off. So, I think it is the stocks that have more upside versus the defensives that you buy if you think the market’s going down. So, yes, financials, but technology, consumer discretionary, which haven’t done as well recently — I think they’ll play a little catch-up here.”
