The New York Stock Exchange
The New York Stock Exchange. The trade war has been one of the biggest headwinds for market participants this year. Image Credit: Reuters


Global equities are expected to ride high on the “big progress” that US president Donald Trump spoke about with China on the trade front.

Trade war has been one of the biggest headwind for market participants even as they had been getting mixed signals on the fragility of the truce that was called after the G20 summit in Argentina. Trump in a tweet said the agreement was “very comprehensive” and will cover “all subjects, areas and points of dispute” between the two countries, that has lost billions of dollars on the recent escalation in trade conflict.

“Markets have been starving for some positive news after market commentary had been mainly focused on global economic slowdown and recession fears. They finally received that good news. US holiday sales in 2018 rose 5.1 per cent according to Mastercard, the strongest growth in six years. This was a clear indication that consumer confidence remains high despite the recent plunge in equity markets,” Hussain Sayed, Chief Market Strategist at FXTM said.

Other factors such as comment from the White House assuring investors that Fed chief won’t be fired and a report issued before the market closed stating that a US delegation will visit Beijing early next year to revive trade talks would help sentiment.

The Dow Jones Industrial Average closed 0.33 per cent lower at 23,062.40, a day after the gauge jumped more than 1,000 points, its record daily rally.

The S&P 500 index closed 0.12 per cent lower at 2,485.74.

The indices witnessed a volatile week ending December 28, when all the major indices fell in bear market terittory at one point. The current recovery however can prove to be a dead cat bounce, according to Sayed.

“It’s still too early to conclude whether the market correction is over or more downside is yet to come. Such rallies are not uncommon in troubled times, and we have experienced many of them in past bear markets. To call for a bottom, we need at least a couple of days of strength, not just in price, but also in trading volume, breadth of the market, and fundamentally supported environment,” Sayed said.

“Until we see a shift in fundamentals, it’s challenging to build on a single day rally,” he added.

Tougher environment

The next year would be tough for capital markets, but the “environment is navigable,” according to Mark Haefele, global chief investment officer at UBS said.

“First of all, stay invested and be prepared to face higher volatility in your portfolio. Slower growth and higher rates does not make recession imminent,” Haefele said.

Investors are advised to invest company that are exposed to secular growth and high quality earnings or those pricing overly negative scenarios.

“The late stage of economic cycle is the best time to lay a foundation of your financial plan, which would help to reduce the danger of falling prey to costly decision during potential downturns,” Haefele said.