Although there is still a correction in the cryptocurrencies market, there is something else going on on Wall Street. The last session on the New York Stock Exchange on Friday brought new records for the three main indices. The media are already talking about a “classic melting pot”. The mood of investors is extremely good.
On Friday we had the seventh session in a row where the Wall Street indices set new historical highs. After a jump of 0.49% the S&P500 is at 3,221.22 points. Dow Jones increased by 0.28% and finished the week at 28 450.09 points. Nasdaq Composite scored a 0.42% increase to 8924.96 points.
Wall Street celebrates the agreement with China?
Where did this bull market come from? Among analysts, the dominant narrative is that this almost 12% increase in S&P500 in Q4 is a market reaction of the “first phase” of the US trade agreement with China. But isn’t that an exaggeration? We are talking about an agreement that has not yet ended the currency and trade war between the two largest world economies.
However, this is also accompanied by really good macroeconomic data. In November alone, American spending increased by 0.4% mdm. This phenomenon was accompanied by a very strong increase in the income of American households (by 0.5% mdm against an expected 0.3%). In addition, the consumer spending deflator (PCE core) – to put it simply: the Fed’s preferred measure of price inflation – is only 1.6% y/y. It is therefore still below the Federal Reserve’s 2% inflation target.
The CNN Business Sentiment Index currently indicates “extreme greed”. It already shows the highest readings since autumn 2017. At that time the previous “melt-up” on the American stock market took place, which ended in an obvious way for such situations – a very sharp correction in February 2018. It is almost certain that it will be no different now.
However, there is some uncertainty for Americans in 2020. The election campaign will continue for most of the year. It is not at all clear that Donald Trump will be re-elected as President. The White House’s change of tenant could mean adjustments in economic and foreign policy, which would affect Wall Street.