The Bottom Line
- S&P 500 up +1.32%
- Stoxx Europe 600 up +1.80%
- Shanghai Composite Index up +1.42%
So What Happened?
The S&P 500 registered its second +1% move of the week, closing up 1.32%, while broader Europe and Asia ended on the plus side as well. For the week, the S&P 500 is up +3.52% as it slowly tries to dig its way out of the correction-sized hole that started back in late September 2018. The U.S. market has now posted positive returns each week since Christmas (four weeks).
So what drove the markets today? They say history repeats itself, and today proved no exception as a slew of familiar-sounding headlines left investors in an upbeat mood. Specifically – positive trade news out of China, an announcement on interest rates from the Fed, and a report on U.S. manufacturing output in December.
In regards to China, officials announced a supposed plan to purchase more than $1 Trillion of U.S. goods through 2024 in an attempt to reduce the trade deficit to $0. For reference, the U.S. had a $323 billion trade deficit in 2018. Though this announcement is promising and is proof of improving relations between both countries, history tells us to reserve judgment until a final deal is put on paper and these commitments are put to action.
In economic news, NY Fed President John Williams pleased traders today with language that the Federal Reserve should approach future interest rate increases with “prudence, patience, and good judgment”. Our readers will recall the market has been especially jumpy at the prospect of higher interest rates, so additional language that the Fed is open to keeping rates at bay was taken as a positive sign. And finally, fears that the U.S. economy may be slowing down were dealt a blow today after a report showed U.S. manufacturing output increased by the most in almost a year in December.
Given the back-and-forth nature of these news stories, it seems prudent to remain cautious and avoid the line of thinking that all these problems have been solved overnight. The market has been sensitive, in both directions, to developments in the trade war, interest rates, and the global economy as a whole. That is why we firmly believe “trading on the news” is a fool’s game. Rather, during volatile times it is generally most important to revisit your financial plan and stick to your long-term outlook.
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