Optimism about a potential US-China trade deal, in addition to upcoming federal rate cuts, have sent the S&P 500 soaring. The S&P 500 hit a record high, with the DJIA increasing 0.49%, and the NASDAQ increasing by 1%. But with the stock market being so volatile, what does that actually mean for the economy?
Trade Deal May Be Upcoming
Trump has announced that a trade deal is on the way between the United States and China, which could call an end to the destructive trading policies that have arisen over the past year. Both the economy of the United States and the economy of China will be well served by a trade deal, and they will be able to rebound in industries that are currently stagnating.
Yet economists still warn that a recession may be coming, as not all of the impact of the trade war has yet been seen. Many industries were impacted heavily, including farmers, which may not see an easy rebound. Farmers who lost crops may no longer have the money to continue operating, or may need cash infusions from banks to recover. This could have some widespread consequences later on.
S&P 500 Reaching Into Uncharted Territories
It appears as though the stock market is currently bullish. With the S&P 500 reaching record highs, and the DJIA reaching within a few points of its record highs, there are a lot of positives within the market. But due to the volatility of the market, this could actually lead to some major swings. And that’s a huge benefit to day traders and margin traders, though it could represent a lot of risk as well.
But the real issue is that it appears the stock market is becoming structurally volatile. Volatility is becoming baked into the market. In the past, the market would fluctuate, but the trends were fairly regular. Now the market is fluctuating largely from day to day, and that’s becoming the new normal. As that becomes the new normal, it’s important for investors to adjust.
Primarily, the old metrics may no longer matter. Old patterns of analysis are becoming defunct. Warning signs and signals that were consistent are no longer consistent.
As the S&P 500 continues to reach into uncharted territories, investors are going to need to be on the ball. They need to be able to pivot quickly, and may need to pull back on their risk levels.
Could the S&P Go Down Again?
Despite the remarkable progress, some analysts believe that the S&P could actually go down again rather than continuing its upward trend. Analysts believe the S&P’s volatility could send it hurtling towards recession-level rates, given the current unpredictability of the market. Given that much of the S&P’s growth is presently due to speculation, this could be true.
Right now, almost everything is speculation. Analysts have been talking about a recession for some time, yet that hasn’t happened. A crash has seemed imminent, but hasn’t occurred. Analysts are left confused due to the increased local pressures and volatility of the market, which is creating a market that is different from anything seen before.
A Market of Volatility Can Lead to Opportunity
And that means that analysts and investors are going to need new models, and the investors that are able to create new models are going to be able to be a step ahead of the game. Is there a recession coming? Will there be a market crash? The truth at this point is that no one really knows.
The long and the short of it, of course, is that the S&P 500 is breaking records, and that a lot of it has to do with sentiment regarding the upcoming US-China deal and the fed rate cuts. That also means that the US-China deal is critical. If it seems as though that deal isn’t going to be going well, that means that the market is likely to crash again.
The stock market has already gone up (and down) based on the US-China deal before, and it continues to do so, as investors are attempting to react ahead of the curve. And this may be the “new normal” for the industry.