📈 69% of S&P 500 stocks beating the index - a historic record! Pick the best ones with AI.See top stocks

The Stock Market Will Trade Sideways

Published 12/06/2019, 08:47
UK100
-
US500
-

Stock markets have rallied to overbought levels, the FTSE 100 is now pulling back. The rally is nearing an end, in the US the S&P 500 is approaching the all-time high.

You will notice that the US trade war intensifies when the stock market is near the all time high and recedes when the stock market is too low. The US government knows the trade war is bad for the stock market, so they can only implement new measures when stocks are at high levels. They hope the stock market won’t be affected. If the stock market falls they back down or they distract investors with bullish news to rally the market.

In the last few years the position of the stock market has become an important indicator for the Fed and the US government. When you have a fragile economy you need a strong stock market to compensate. If the stock market is weak the economy goes into recession. If the economy goes into recession the risk of deflation rises and governments can’t afford deflation. You will recall it was precisely the collapse of the stock market in 2008 that prompted the Fed to launch QE to stop deflation.

This is why the Fed and the government will do everything to keep the stock market high. The thing is this time the Fed is running out of ammunition and the US government is running a massive budget deficit, it is virtually bankrupt. Their efforts will not be rewarded.

Therefore we can expect the stock market to pullback 2 or 3%, then it should rally again near the all-time high (S&P), at which point the trade war will intensify. Meanwhile the economy will continue to decelerate, this will create headwinds for stocks. Any trade war resolution will be offset by rising risk of recession. The stock market will trade sideways for a long time.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.