Why US Stocks Have Gained by More Than 10% This Year -Introduction
This year, the markets have been on a tear. After falling to the bear territory in December, the markets have made an interesting recovery. Year-to-date, the Nasdaq, S&P 500, and the Dow have all gained by more than 10%. From the lowest level in December, the three indices have gained by almost 20%. At the same time, crude oil has also moved up, with the WTI and Brent moving up by more than 20%. This article will explore the main reasons why the world stocks have moved up this year.
In December, stocks declined sharply when the Federal Reserve raised interest rates and hinted that more rate hikes were to come. The central bank simply defied Wall Street’s expectations by sounding more hawkish at a time when everyone was scared about the weakening of the economy. In January however, when the Fed met for another monetary policy decision, the officials changed cause and started sounding more dovish. Specifically, the Fed officials said that they were taking a stance of patience. This was interpreted to mean that the Fed will not continue with the hikes it had promised earlier. As a result, investors, who are always afraid of interest rates hikes, cheered the dovish views of the Fed.
Another reason why investors have come back to stocks is on trade. In December, at the G20 meeting in Argentina, Donald Trump met with his Chinese counterpart. The meeting was intended to address the important issue of trade. After the meeting, the two leaders announced a truce that would end the tit-for-tat that was going on. The two agreed to engage in talks that will prevent the trade war from escalating. The US has accused China of a number of things. First, it has accused it of having big tariffs that prevent the US from exporting goods to the country. Second, it has accused it of having a number of non-tariff barriers. Third, the US has accused China of stealing its technologies. Fourth, China has been accused of large scale intellectual property theft. Since then, talks have been ongoing between the two countries and traders are waiting for a breakthrough.
After the third quarter earnings, traders grew very concerned about the slowdown in corporate profits. This was after a number of influential companies cautioned that their earnings will be hit. In the fourth quarter’s results released a while back, the results changed. Companies like Apple boosted their forward guidance while problems in Facebook seem to be abating. This brought hope to investors that the results this year will continue being better.
The performance could have been better except for a number of market risks. First, traders are still worried about Brexit and the implications of leaving the union without a deal. Second, they are worried about global growth. Recently, a number of organizations like the World Bank, International Monetary Fund (IMF), Bank of England (BOE), and European Central Bank (ECB) have lowered the guidance of the global economy. Third, there are concerns about Europe. In recent weeks, European countries like Germany, Italy, and Spain have released weaker-than-expected results, with Italy being in a recession.