Saturday, December 01, 2018

Year End Rally? Or Not.....

In August 28, 2018, I posted an article that predicted the market would close higher by the end of the year.  The S&P was at 2897 on that date.  While a new high we achieved in September, the S&P is lower at 2760 at the end of November.   To close higher at the end of the year, the S&P would need to advance a minimum of 5% (140 points).      Here are my thoughts on the likelihood of a 5% or greater advance by the end of December.

Here are the key factors:

  • G-20 Meeting and China/U.S. Trade Negotiations.  President Trump's stance on the China/U.S. Tariff/Trade negotiations will have the most impact.   A hawkish view will cause the market to decline.   A deal making view will lead to a market advance.  The pundits are leaning towards a negotiated delay in tariff implementation, which would be a positive for the market.
  • Fed Meeting.  The December 17-18 meeting is expected to result in another quarter point interest rate increase.  However, the Fed is expected to reduce the number of increases in in 2019.  This would be a positive for the market.
  • Algorithmic Trading.  Depending on how computer algorithms react to the G-20 meeting, Tariffs/Trade negotiations, and the Fed Meeting, the market could move sharply up or down. I believe the algos will buy based on the positive outcomes above.
 Currently, there is a lot of pessimism about the market.  I know people that are mostly in cash or even taking bearish short positions.   If the market starts advancing, people will need to reverse their positions.

So right now, I still expect a year end rally and a new record before the end of the year.  Of course, that could change once President Trump tweets about the status of trade talks with China.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

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