Dow Holds on to Trade War Hopes and Earnings, Others to China GDP
Equity Fundamental Forecast: Mixed
- The first week of earnings was a boon for US equities as bank stocks dragged the broader indexes higher throughout the week
- Chinese GDP will offer insight to the ‘Chinese slowdown’ that investors have been wary of
- If trade war false flags prove legitimate, the economic show-down could become the main equity driver
Trade Wars and Earnings Season Will Drive US Stock Markets
Last week was filled with talks of trade war truces and new trade deals between the US and China. Unfortunately, they proved to be false flags, an occurrence becoming all too familiar. Still, US equities enjoyed a bump on each news release, only to eventually retrace. If a trade deal is truly cemented, expect equities to enjoy a rally given that a major headwind is removed from the fray. Unfortunately, clinging on to such hopes is ill-advised with few concrete steps toward a deal being announced.
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On the other hand, palpable progress has been made in the fourth quarter earnings season. Last week kicked off the season in earnest with the largest banks and the first FANG member Netflix. Thus far, earnings seem to have generated some positive sentiment despite some mixed performances. Bank stocks like Bank of America (BAC) and Goldman Sachs (GS) dragged the financial sector higher and provided some buoyancy for the larger market this week which was likely boosted further by dovish commentary from Fed Chairman Powell.
S&P 500 Price Chart Daily, March 2018 – January 2019 (Chart 1)
Learn about the differences between the Dow, Nasdaq, and S&P 500.
Next week, earnings will continue with giants like Proctor & Gamble (PG), Comcast (CMCSA) and AbbVie (ABBV). Positive results from these or any of the other large corporations reporting next week can spur positive sentiment and, in some cases, single handedly drag an index higher. Follow me on Twitter @PeterHanksFX for commentary and updates on specific corporate earnings and the season overall.
Given the laundry list of conflicting themes in the equity theatre, the fundamental outlook for the S&P 500 is mixed. However, the weekly equity technical outlook may suggest otherwise.
See the other economic events in the week ahead with our Economic Calendar.
The final broad theme facing the S&P 500 and global stock markets in the week ahead is China’s GDP. The data is due Monday and will offer insight to speculators and investors around the globe as to the degree of China’s economic production which is widely believed to be slowing. As the world’s second largest economy, a slowdown in China has rattled equity sentiment and could have a knock-on effect on the US economy. If GDP is substantially above or below expectations, expect sentiment and equities to act in lockstep globally.
Brexit Risk Proves Incessant
FTSE 100 Price Chart, March 2018 – January 2019 (Chart 1)
As for the FTSE 100, Brexit will continue to dictate price action. Last week was chocked full of important votes for the nation and the FTSE performed admirably as each result met expectations. Still, not much has changed for the Brexit situation other than the rejection of May’s deal. Parliament could vote to take control of the process on January 21st.
Brexit Timeline – The Path Ahead and How it Affected Markets
If it comes to fruition, the development would have a mixed impact on the FTSE. Some speculators believe Parliament could successfully achieve concessions from Brussels and therefore a deal MPs would agree on. On the other hand, some analysts believe Parliamentary control would increase the chance of a no-deal Brexit. Therefore, the fundamental outlook for the FTSE is mixed.
Read more: Will the Stock Market Crash in 2019?
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact Peter on Twitter at @PeterHanksFX
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Other Weekly Fundamental Forecast:
Australian Dollar Forecast – Slowing China GDP to Curb AUD/USD Flash-Crash Rebound
Oil Forecast – Can Crude Oil Prices Keep Rising as China Slows? Brexit, ECB Eyed
British Pound Forecast –Bulls Taking Control of Sterling
US Dollar Forecast– May Find Support as Global Outlook Worries Mount
Gold Forecast – Will USD Gains and Returning Optimism Fade?