The S&P 500 has risen a remarkable 17.7% this year to a new record and is on track to post its best June since 1955 -- this performance coming despite a long list of headwinds, the biggest of which is the U.S.–China trade war. This has penalized important sectors such as transports, semiconductors and bank stocks.
Now, the decade-long bull market is poised to shift into overdrive amid growing optimism that a positive meeting between U.S. President Donald Trump and Chinese President Xi Jinping could set the stage for a trade deal, either in the near term or within the foreseeable future. That prospect, along with interest rate cuts, has caused the broad stock rally in recent days, “Central banks came out and surprised folks with a more accommodative approach, and enthusiasm built around Trump and China meeting. That created a lot of momentum,” said Joseph Amato, chief investment officer of equities at Neuberger Berman, in a detailed story in the Wall Street Journal on the market's rebound.
What it Means for Investors
It was only a little under two months ago that stocks began tanking as the ongoing trade war between the U.S. and China took a negative turn, ramping up tariffs on each others’ goods. The market's first steps of recovery have been spurred by reassuring comments at several key points from Federal Reserve Chair Jerome Powell and the Fed board indicating that rate cuts may be coming soon.
In addition to the S&P 500’s performance, the Dow Jones Industrial Average (DJIA) is on pace for its best June since 1938. The Dow is inching towards a new record and is now within striking distance - about 10% below -- the Dow 30,000 milestone. Some market watchers think it will hit that by the end of 2021, according to Barron’s.
Until now, stocks have reached their new highs only on a handful of equity cylinders as cautious investors have focused spending on safe havens, which are less cyclical, defensive sectors of the market, such as utilities, consumer staples and real estate, according to the Journal. They’re confident about a trade deal, but they’re still hedging that bet.
Despite the S&P 500 reaching a new high in the past week, the index has been essentially flat during most of the last three trading days, hovering near its record.
But a new wave of investor confidence sparked by optimism about a U.S.-China trade deal could ignite purchases of major sectors that now are being shunned. “The missing ingredient to help punch through for a sustained rally: getting the more cyclical areas of the market involved, namely transports, semiconductors, portions of discretionary and the banks—big weights that have been inconsistent,” Strategas Securities technical analyst Todd Sohn told the Journal.
Despite the cautious optimism about a trade deal, there's a real chance the Trump-Xi meeting could end in disarray, with threats of more tariffs thrusting the market into upheaval. That unease is illustrated by the sharp rise in prices of safe haven assets such gold, gold stocks, and gold ETFs, which indicate that many investors remain deeply skeptical about the equity markets.