Stocks: S&P’s latest all-time highs could be brief

If this latest trade optimism fades completely, the focus will turn very quickly to the ailing global economy. As such, the S&P’s latest breakout to a new all-time high could be brief, especially as some of the positivity regarding trade talks was already priced in.

The US-China trade optimism is driving the markets and the S&P 500 has opened at a fresh record, while safe havens gold, yen and franc have all fallen. Tech stocks jumped after Trump said he would allow US corporations to resume business dealings with Huawei on certain products after it was blacklisted earlier due to national security concerns.

Global manufacturing PMIs disappoint

But July has started with a negative note for global manufacturing data, after purchasing managers reported deteriorating conditions in several key economic regions including China and the US. Initially, this was shrugged off by a market buoyed by the latest developments regarding the US-China trade spat, after Trump said trade talks are back on track. However, since the start of the US session, we have seen a bit of a pullback from the highs. If this latest trade optimism fades completely, the focus will turn very quickly to the ailing global economy. As such, the S&P’s latest breakout to a new all-time high could be brief, especially as some of the positivity regarding trade talks was already priced in.

OPEC+ cuts unlikely to keep prices support for too long

Also, I am not sure if crude prices will be able to rally significantly from here – in fact, I am expecting them to fall. Russia’s energy minister Alexander Novak said that all oil ministers have approved a 9-month OPEC+ extensions to curb production. This is arguably a better deal from the OPEC’s point of view than a 6-month extension some had expected, but with the same production quotas being retained, it has disappointed calls for deeper cuts. As such, the new deal will probably fail to address the rising non-OPEC supplies at a time the world economy is slowing, which could mean lower demand growth. Thus, the oil market is likely to be oversupplied again in due course, which means prices may struggle to push significantly higher from here. That in turn could weigh on energy stocks.

S&P 500 traders awaiting bearish price action first

However, the S&P will only turn negative from a technical point of view in the event it breaks below its most recent low at 2910. Until and unless that happens, the path of least resistance continues to remain on the upside. Indeed, if the bullish trend continues, we could see SPX 3K soon, with the 127.2% Fib extension at 3021/2 being the next bullish objective.

Source: Trading View and City Index. Please note this product may not be available to trade in all regions.

Related Articles

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.