The stock market is itching to make new highs, and it may soon, as long as progress continues to appear to be made on the trade war front.
Technical market analysts, who watch stock charts, see an opportunity for stocks to break above previous highs, after therose above its 50-day moving average last week and crossed above August highs, two signals of positive momentum.
September has started off on positive footing after August's decline. Usually a weak month, the S&P 500 was up 1.7% so far for September, as of Monday morning. He said the market is still reacting to last year's sell-off, and is now in a position for a move higher. "When it's done raining, it's still wet outside, and that's what we had in 2019. The storm was in 2018 when we had the big downturn in December," Wald said. "2019 has been base building... It was our case there would be a shakeout summer."
"It does seem, since the Trump tweet [on trade] in early August...the biggest thing that's changed since then is the global economic reports have gotten better on average," said Pauslen. Paulsen said he has been watching economic surprise indexes, and they are rising globally. The indexes measure beats against misses on economic data, and when they are positive it is perceived as good news for the stock market.
But he cautions that if the yield curve does not steepen and is inverted that could undermine investor confidence, since it is a recession warning. The yield curve is inverted when short term intrest rates are higher than long duration rates. He said the Fed should cut rates by 50 basis points to help the process.
"Cyclicals/Defensives flows, price relatives and Value/Growth valuations all look stretched, with Banks in particular trading significantly below what peripheral spreads would imply," noted the J.P. Morgan strategists in a note. "We have argued last week that a turn in sector leadership is upon us, especially if bond yields inflect higher, where Cyclicals and Banks should be favoured into the year-end.
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