The Fed’s Backing This Market

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‘Don’t buck the bull.’

That’s an American way of saying the trend is your friend.

Alright, I admit it. I’ve been a bit hesitant to say that. But it looks like the US is about to pull all the strings.

And this may just send stocks soaring. At least for the first half of the year, anyway. More on that in a moment.

No doubt, this is a very different outlook to what I thought 2020 would look like.

I expected a bit of a pullback in the first quarter. That’s an idea I haven’t completely written off.

But as each day passes, the theory is looking less likely.

Anyway, why should you care about the US? Well, let’s put it this way…

Where’s the trade deal?

The phase one trade deal between the US and China is expected to be signed on Wednesday.

We’ll get whiff of this news on Thursday here in Australia.

It’s exciting times, that’s for sure. And it could be just what Trump needs to get a second term…

Which may explain why the Trump administration has already started to mend things early.

Overnight, 13 January, the US decided to remove China from its list of currency manipulators.

As for the trade deal? Well, ‘China will commit to not depress its exchange rate and will make additional disclosures about its foreign-exchange practices.

That’s, at least, what The Wall Street Journal reported anyway.

It’s no secret that China has been engaging in practices that benefited its currency in global markets.

So, for the US to change their stance, it makes for a curious turn of events.

The Dow marches higher

Anyway, investors took this as positive news. And the Dow Jones rose 0.29% for the day.

And while it hasn’t been able to break into all-time highs, it’s still high.

I suspect this is perhaps that the market is waiting for the trade deal outcome.

Here’s the chart of the Dow Jones.

Port Phillip Publishing

Source: TradingView

[Click to open in a new window]

What you’re looking at above is a one-year daily line chart of the Dow Jones.

That means it’s showing you the price of the Dow Jones since this time last year.

As you can see, the recent rally into 2020 hasn’t been overly bearish.

Though with only 10 days to judge this with, we can’t make any irrational outcomes…

What’s good to see however, is that the Dow Jones already made two new all-time highs.

The first was on 2 January and then again on 9 January.

Right now, I’ve set an alarm for the 15 January.

This coincides with the trade deal signing. It’s this Wednesday, US time.

With the market moving higher into the trade deal, we might just see a ‘buy the rumor sell the news’ event.

Of course, there’s no guarantee here. It’s just me hypothesizing about what may happen.

Trade deals, retail data and a bull

Though, you shouldn’t write it off. We’ve all been waiting for a trade deal for around two years now.

Once we finally get one, it’d be interesting to see how the market reacts to it.

The primary bias from the market is that investors would take this as a reason to bid it up.

Which may indeed be the case. But occasionally the market likes to give you a bit of a kick. So, I’m happy to wait and see.

But that’s not all that’s happening this week.

There’s also the Retail Sales data. I won’t go into too much detail about this today. Just keep it on your radar.

Sebastian Galy said that ‘the trend for a weakening US consumer might continue with a disappointing retail sales print.

Sebastian is the Senior Macro Strategist at Nordea Asset Management.

As I mentioned, it’s just another thing you should be watching this week.

But don’t let all of this pull down your mood this week.

After all, the US fed is backing the markets right now. And for as long as they do, you shouldn’t buck this bull.

I mean it…right now, opinions serve no place in the market. That includes many of mine that I’ve shared with you today.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch

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