Wall Street Indexes Dip From Record Highs Amid Trade Deal Doubts

Optimists will tell you the U.S. stock market has shown remarkable resiliency. Pessimists will point out that the U.S. and China aren’t any closer to a trade deal than they were in May.
James Hyerczyk
Stock Market Uncertainty

The major U.S. equity indexes may have hit record highs again on Monday, but the pullback from those highs suggests the buying was a little tentative and perhaps, longs have started trimming positions amid mixed signals around the progress of the U.S.-China trade talks. Wall Street’s main indexes eased from record levels after a report stoked fears about a resolution to the trade dispute between the two economic powerhouses.

In the cash market on Monday, the benchmark S&P 500 Index settled at 3122.03, up 1.57 or +0.05%. The blue chip Dow Jones Industrial Average finished at 28036.22, up 31.33 or +0.12% and the technology-based NASDAQ Composite closed at 8549.94, up 9.11 or +0.11%.

Price Action Drivers

The week started with investors optimistic after Chinese state media said over the weekend the United States and China had held “constructive” trade talks, days after White House economic adviser Larry Kudlow said they were getting close to a trade deal.

However, after reaching record highs, the major averages failed to post significant gains after CNBC’s Eunice Yoon reported, citing a government source, that Chinese officials are pessimistic about the prospect of a U.S.-China trade deal. China is troubled by President Donald Trump saying recently the U.S. would not roll back tariffs as they thought both sides had agreed to do so in principle, Yoon reported.

Are Investors Being Set-up for a Big Fall?

Optimists will tell you the U.S. stock market has shown remarkable resiliency. Pessimists will point out that the U.S. and China aren’t any closer to a trade deal than they were in May. Furthermore, corporate earnings have not improved and economic news has “weakened”. Additionally, how much of the rally has been fueled by “cheap money” after the Fed’s three rate cuts since July?

Ilya Feygin, senior strategist at WallachBeth Capital, noted stocks might be getting a boost thanks to investors’ fear or missing out on the current rally. That’s hardly a major reason to invest at record highs.

“The market has been driven in recent weeks by people getting back their S&P and Dow exposure,” he said. “We saw about $9.5 billion in net inflows into U.S. equity ETFs, and we’ve had a low of weeks like that lately. A lot of people were caught cautious and have been forced to put money to work at higher levels.”

Uncertainty Brewing

Have you noticed that positive news is always attached to a name such as Trump, Kudlow, Ross, Lighthizer, Mnuchin and Chinese Vice Premier Liu He. But negative comments, like last week’s “snag” and yesterday’s worries over the rollback of tariffs, come mostly from an “unnamed source”, or a “government source” or “people close to the negotiations.”

I don’t know what this means, but I do believe it’s enough to create uncertainty. And when there is uncertainty, investors take profits, trim positions, and basically start to sell.

Furthermore, the low level of volatility suggests investors have become complacent. And this usually precedes a steep break.

Quote of the Day

“This is a market that’s going to live or die by the tone around trade,” said Art Hogan, chief market strategist at National Securities in New York.

“There is some good news that’s baked into this market, so when we get bad news (it’s) going to roll over.”

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.