On Monday, the S&P 500 opened at a record high, signifying the current strength of the American economy. Seasonly, stocks are expected to soar around this time of the year, however, this record breaking opening for the S&P 500 means something different: the US-China trade war has not negatively affected the US economy as many investors and economists thought. Furthermore, the most impacted section of the American economy by the trade war with China, industrial companies, was seemingly the main contributor in the stock markets growth. According to CNBC, 206 of the S&P 500 companies beat 78% percent of analysts expectations. These statistic reveals the fear that many investors had regarding the strength of the American economy, and the fact that stocks opened at a record high and closed at 3,039, suggests that many market experts were mistaken.
Despite the stock market reaching record highs, there are a multitude of facets in the American economy that could deter growth or even cause a reversal in stock prices. The first of which is Fed rate cuts. This week, the Fed is expected to cut the rate once again and release information about the occurrence of a subsequent cut. This would increase volatility in the stock market dependent on how much the rates are cut. The second possible detriment to an expanding stock market is the quarterly earnings report of many S&P 500 companies. Although these companies are, on average, out-preforming estimates by a significant margin, they have also witnessed a seemingly contradictory decrease in earnings growth. This could mean that the market predictions are too hopeful on a trade resolution between China and the US. Thus, if somehow trade tensions increase again and the stock market predictions become doubtful, the stock market prices would react accordingly.
Keith Knutsson of Integrale Advisors commented that, “The S&P 500 reaching record highs reveals the mitigated impact of the US-China trade war on the US economy. However, investors should not get too excited as stock prices could witness a reversal depending on Fed cuts and further trade conflicts with China.”