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Bulletproof stock market shakes from negative headlines and continues to go to record



Traders wear "DOW 28,000" hats on the floor of the New York Stock Exchange (NYSE) on November 15, 2019 in New York City. As trade talks with China show some progress, the Dow Jones industrial average rose 222 points to close over 28,000 for a new record.

Spencer Platt | Getty Images

Negative trading headlines, which have sometimes caused havoc with the markets over the past two years, seemed to lose its ability to beat the stock market recently as it marches to new records. Investors pointed to a number of reasons why this market just seems to want to go higher when it ends in 201

9.

Just Tuesday, President Donald Trump threatened to raise tariffs even higher if there is no agreement with China. S&P dipped slightly and then came back immediately. On Monday, CNBC's Eunice Yoon reported that Chinese officials were pessimistic about a trade deal. Shares opened the day lower but were then removed a record high before the end.

Among the reasons stated for the market headwind in the light of fragile trade negotiations are investments at year-end for investors and adjustments of companies to manage duties. The economic impact of existing duties has also been more limited than originally feared.

"The reason this market continues to rally is that no one is selling," Matt Maley, Miller Strategy's marketing strategist, said on a note. "This is especially true for institutional investors. It's been a good year … so they can't afford to take any chips off the table as we enter this year's six last weeks."

In other words, with the S&P 500 up nearly 25%, professional investors do not want to be the ones selling early and then having to explain to customers why they missed a potential historic year of profits. The reference level is on track for its biggest annual profit since 2013, when it rose almost 30%.

It has been a slow march upwards. Wall Street's latest march to record highs has mostly come through small gains at a time. The S&P 500 has registered only two gains of at least 1% since October 11. During that time, the index has posted 14 gains of less than 0.6%.

Shares have not had any meaningful decline during that time period either. The S&P 500 has been down nine times since October 11, and none of those movements achieved the 0.4% mark.

Corporate America OK with current duties?

The US-China trade war has been going on since last year, leaving companies hugging to adapt to the stricter terms of trade and issuing warnings about the impact of the conflict on their final lines. But the conversation about trade from companies has fallen off.

FactSet data shows that S&P 500 companies that discussed duties during the third quarter fell by 29% from the second quarter of the year. On an annual basis, the number dropped by 25%. This may be a sign that Corporate America has become more comfortable with tariffs that are at current levels, which could translate into improving market sentiment around US-China trade.

Jeff Mills, Head of Investment at Bryn Mawr Trust, said there was so much negativity priced in trading, "while you are now starting to see the first signs of optimism finding the way to market . "

"I don't think we" I'm somewhere close to the euphoria point, but I think negative feelings are less of a market asset than it might have been a month ago, "Mills said.

China hurt more from trade wars than the US

The trade war has taken its toll on both the US and Chinese economies over the past year, but particularly on China, according to Goldman Sachs.

Jan Hatzius, the bank's foremost US economist, told clients in a note Monday that the trade war shakes between 0.7% and 0.8% from the Chinese economy, more than in the US, but he added that the economic war from the trade war should "gradually fade" by 2020 as tariffs "have probably reached a peak." [19659010] Still hoping for a deal

a good portion of the market's rally to all-time highs comes from optimism for some kind of trade deal struck by both sides. On October 11, Trump said that China and the US had reached a phase one mortgage agreement that will be signed sometime this month.

The Mills of Bryn Mawr Trust said that the recent negative headlines on trading are not enough to make investors believe it is a base-case scenario. But "when the market starts pricing in good news, it becomes more vulnerable to a given tweet."

At the same time, the government debt yield has fallen since the beginning of last week after ripping higher in mid-October. The 10-year government rate reference level is down to about 1.8% from about 1.95% on November 11.

"The bond market clearly secures but the stock market, you wonder if it says to some extent that it's all good in any case," says Gregory Faranello, head of US stock trading at AmeriVet Securities. gets done, maybe the Fed will come back and ease more and provide more liquidity. I hope the stock market doesn't go down on that premise. "

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—CNBC's Jeff Cox and Michael Bloom contributed to this report.


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