The coming week could be an important turning point for two big fear factors for markets — trade wars and rising interest rates.
The coming week could be an important turning point for two big fear factors for markets — trade wars and rising interest rates.
The big event of the week, and one that could impact markets and the economy for months to come, is the meeting between President Donald Trump and China President Xi Jinping on the sidelines of the G-20 in Buenos Aires, which starts Friday. There is hope that both sides will show a willingness to negotiate and hold off on a further escalation of tariffs.
There is also an appearance by Fed Chairman Jerome Powell at the Economic Club of New York on Wednesday, and traders are hoping he will calm some of the market angst about rising interest rates. Fed officials recently have sounded slightly more dovish, and the market has begun pricing out multiple rate hikes for next year, though a rate hike is expected when the Fed meets Dec. 18 and 19.
Stocks sold off in the worst Thanksgiving holiday week for the Dow, Nasdaq and S&P 500 since 2011. The Dow was down 4.4 percent for the week, to 24,286, while the S&P 500 was off 3.8 percent, to 2,632. Nasdaq was down 4.3 percent, at 6,938.
Stakes are high for the talks between Trump and Xi, and traders have been awaiting that meeting as a potential catalyst that could shake the market out of its current slump. The S&P 500 has lost 9.7 percent since the beginning of the quarter and is now down 1.5 percent for the year so far. It is also more than 10 percent off its high, entering correction territory.
«It won’t be a viable move unless there is reason to think this is more than just a feel-good announcement from the White House. It could be very important for markets,» said Quincy Krosby, chief market strategist at Prudential Financial. If the talks show no signs of progress, strategists said it could be a major negative for stocks.
Many economists have factored a trade war into their forecasts for 2019 and expect the tariffs to have some impact on the economy, especially if they are increased, as threatened by Trump. Tariffs on $200 billion in Chinese goods are set to rise to 25 percent from 10 percent in January, and Trump has said he may ultimately tax all Chinese imports.
«The greatest boost Trump could provide to the economy would be to lift the tariffs on China to get a better deal with China on trade. Our sense is a deal is not priced into financial markets, as skepticism remains that either side can reach an agreement politically,» notes Strategas Research’s Dan Clifton, head of policy research.
