This FOMO must influence passive investors mostly. A systematic trader would just jump on the market nontheless and set a stop loss to a % of risk.
Has the trade war rhetoric lost its punch? Stocks held near their record highs on Tuesday, even as Trump said this: “If we don’t make a deal with China, I’ll just raise the tariffs even higher". Market's latest all-time highs appear bulletproof in spite a weakening economy and China standing firm on "no-deal without tariff roll-back" such negative headlines would have rattled nerves just a few weeks ago but we are in the "silly" season... that's when fund managers and institutional traders are looking at "bonus protection" rather than fundamentals and reality... the higher markets close on Dec 31st, the higher their bonus. However, the silly season is also when a small market sell-off can cause an avalanche for the same "bonus protection" reason... institutional traders will be elbowing each other as they lock-in profits while heading for the exit, but right now, negative headlines are ignored, nobody is selling and dumb money is buying... institutional traders are sitting back with bonuses, not trading, on the mind.
This is all time high. Buying pressure is obvious. Yet, who is selling? Market never traded at this level. Nobody did buy those shares at this price before. On the sell side I see little short sellers and those who bought the market at lower price some time ago (Roll Over). There's unvisible risk being warehoused more and more.
The mini-trade deal, as uneventful as it was, is all but dead, the probability of ever reaching agreement on the core issue of IP protection and free access to Chinese markets is practically zero. China has shown its cards... they want tariff relief but are unwilling to give anything away to get them, and Nancy has magnified the unwillingness of China to compromise 10 fold. Markets did dip on the realization that an escalation is more probable than a resolution, but then they mostly recovered. I've been saying since the trade war started... The US does not need China, it needs to stop China's explosive growth "paid for" by the US, if this means no trade with China then that's fine, the US might grow a little slower if it hasn't unconditional access to China's middle class but it will grow none the less. All the hype on a tweet that a "deal is close" is media BS that plays the retail investor like a yo-yo... in on good tweets, out of bad reports... it's all BS... the US economy is fine with or without a deal, it will not be fine if China steals the IP then undercuts US prices. If other factors bring US markets down below 26,700ish (DOW), they might keep going as a correction is due, however, it won't be trade causing a correction.
Earnings need to rise 14% to justify current market levels. Forward factoring of a trade resolution has pushed prices up. My view is that only a full trade deal, that includes both IP and the opening of China to US companies, has a chance to grow earnings by 14%, the phase 1 deal won't cut it at all even if done, and a full deal will just put markets at fair value at current levels. Those that are calling new highs and a 30k DOW are grasping at straws as the US economy is still contracting.
US markets closed lower for the week unable to recover from their 19th Nov sell-off, however, continued prospects of no trade deal and impeachment did not send them lower than the 19th low. Europe, on the other hand, reached recent highs as the US was selling-off, the CAC even broke all-time highs. The 1st speech of the new ECB head did not go well, European markets sold off after the speech but still managed to close the week positive... The lawyer turned central banker (not unlike Powell) was unable to convince the Europeans that she's up to the job nor give certainty that she has a plan to ensure that the UE experiment will not be heading for failure... negative rates and unperforming loans have the European banking system on its knees, while the strong EU is putting southern Europe in recession and in continuing austerity. I entered the week short US and Long EU so I had a good week t/p on many of the EU longs. As my view is for more sell-off in Europe and for a correction in the US, I'm remaining short US & neutral EU going forward.
Jason Goepfert, the president of Sundial Capital Research, has analysed the options market and believes that the VIX is at risk of spiking by 50% or more within the next 2 months. He is warning his clients to expect stocks to fall soon saying that the 4 sentiment and risk indicators he watches are simultaneously near the bottoms of their one-year ranges noting that though-out history, every time all 4 indicators are simultaneously at the bottom, the VIX surges by 50% or more within the next two months. https://www.investopedia.com/why-investors-should-brace-for-a-50-volatility-spike-4776874 The above is a conclusion reached through TA of the options markets, however, it is in line with my views based on fundamentals which indicate that market players have over-projected PEs by 14%. A spike of 50% in VIX would equate to 10% to 12% fall in the S&P500. A 50% spike in the VIX now would put the VIX at 21, for reference, the VIX spiked to: 37 during the Feb 18 2018 sell-off 36 during the Dec24 2018 sell-off 23 during Trump election 32 during BREXIT referendum
The HSI is leading the Asians up after its pro-democracy candidates overwhelmingly got the votes. It is yet to be seen whether celebrations are in order, I don't think China likes the results and might grudgingly accept the outcome or clampdown, the latter will escalate protests significantly. For now, all markets, including US futures, are celebrating, this is despite the circus continuing in US politics... Giuliani now has threatened to expose Trump's doings and also release "the Biden" papers (whatever these are) if Trump does not support him to get out of his current troubles. Why anyone wants to go inside the gunpowder keg by being Trump's personal lawyer is beyond me. I would give the idiot of the year award to Lam, she could have met the protesters demands early in the game instead of doing it when it was too late, now she allowed the elections to proceed knowing darn well what the results would be while in an environment of defiance and that these would anger China. If a chief executive mandate is to to maintain peace and prosperity then she's an absolute failure.
Over the weekend China announced they will take a tougher stance on Intellectual Property protection. The news renewed hope of reaching an agreement and signing phase one of the US/China trade deal, this helped markets to gap up and to continue trading higher. However, China said this before a year ago.. is this time different? Seems to me that all China is giving to get the deal through is regurgitated promises. So far, none of what China said it will do has been done, we really need to see what trump wants in the form of verification and the penalties for non-compliance, if China signs off on that, then we can celebrate, at least for a while, then... China will cheat and Trump will re-impose tariffs. Markets have a short memory... about a year ago there was a full agreement (not phase-1 as is now celebrated), China agreed to introduce new IP laws and enforce them, they also agreed to abolish the local partner & IP disclosure requirement i.e. give free access of entry into their markets by American Co without IP transfer pre-conditions, further they agreed to continue with produce purchases. All this was agreed in writing but when Trump added compliance verification to the agreement, China refused to sign it. In other words, they had no intention of honouring the agreement so when confronted with having to sign-off on the penalties if they didn't, they walked away. China has built its economy on stolen IP enabling them to undercut prices by not spending on R&D, most factories don't even have R&D facilities. Are they likely to change the culture that has made them an economic powerhouse on the back of other nation's innovations? Do they even have the ability to innovate sufficiently to compete on their own? My guess is no and no, so the conclusion is that there will be no agreement if it includes verification of compliance. My view is that the current market rallies are pre-mature.
Tue saw new highs but the New York and Atlanta Fed are estimating GDP to rises between 0.7% and 0.4% in the 4th quarter and some optimistic economists put the number closer to 1.5%, none is quoting the 3% to 4% figure that's coming out from the white house. Uncertainty over future conditions is at the centre of the low expectations. The 14% to 20% increase in earnings that are projected in current US market levels will be hard to reach making sustained new highs in index prices more hope than reality.