After a discussion of the recession that is in sight, the market is now filled with a bullish position. The increase in equity prices, which has raised indications of benchmark prices, made some stocks that had fallen back lured and attracted investors to buy cyclical shares, whose rise and decline were directly related to economic performance.
However, regardless of this excitement, which was brought on by some developments in trade discussions between China and the U.S., it isn’t very clear how the continuation of the turnaround will take place and whether we can ascertain bottom numbers on cyclical stocks, such as companies producing industrial goods.
U.S., China Discuss Xi-Trump Talks as Trade War Simmers
Signs of Financial Economic Problems
In a stable economic climate, low unemployment rates, and the readiness of the central bank to cut interest rates, there are still some signs of problems on the horizon.
The US Department of Commerce, for example, reported last Friday that retail sales in October failed to recover, following a weak reading in September. These factors encourage JPMorgan Chase & Co. to cut its estimate of fourth-quarter gross domestic product to 1.25% from 1.75% annually.
On the US-China trade front, the news flow sounds positive and maybe the two countries will soon conclude the first phase of their trade agreement. However, from our standpoint, it is still dangerous to build a lot of enthusiasm for this discussion. The two nations proceed to send contradictory signals and hardly any facts can be obtained to summarize that everything is going well.
While mediators organized “positive conversations”, China was cynical about getting an agreement as a result of US President Donald Trump’s unwillingness to decrease current tariffs.
First Sign of Difficulty
Despite these concerns, the current stock market rally shows that investors today are almost certain that there will be positive results that will drive growth and pave the way for companies to meet earnings forecasts for 2020.
When the trade war escalated earlier this year, investors avoided cyclical companies. However, the trend is changing fast. Many sectors currently outperformed the S&P 500. If you are skeptical about this one-sided market view, a wise strategy is to maintain enthusiasm and avoid buying easily troubled stocks.
While financial experts say there will be a “challenging” macroeconomic environment thus impacting all types of funding including car accident loans. The weakness is broad-based, showing demand for its industrial products is being hit from all directions.
The recent show of strength by the US market was mainly driven by interest rate expectations and hopes that trade disputes with China will be resolved. Despite this positive development, this is not a good scenario and many risks still lurk. In this uncertain situation, it is better not to buy stocks that prove too risky and volatile.