Stocks are in the green as progress on the trade front helped drive equities above key support levels. All 11 S&P sectors are positive and concerns of a tightening Fed and recession fears are taking a back seat today.
The stock rally stemmed from the Wall Street Journal report that the “Made in China 2025” may be replaced. Opening Chinese markets to foreign companies is a key goal for the Trump administration. Reportedly China is considering removing the numerical targets for market share by Chinese companies. More access to China and progress on the intellectual property theft front is key progress on the US-China trade war.
Earlier stocks were supported from yesterday’s news that the Huawei CFO was granted bail and President Trump offered his help if it could help get a trade deal done. The ebb and flow of the trade war is currently in the calm phase and the recent market moving headlines have been constructive. The water will rise again, but we may see some calm until the holidays. The Santa Claus rally is typically the last five days of the year and the first two days in January, but the way the trade war is evolving, we may be in for a rally leading up to the holiday. Once past the holidays, the markets will focus on the March 1st deadline until the next round of tariffs rise, possibly suggesting a December rally followed by a Grinch slump.
The US dollar and Treasuries remained week as US inflation rose as expected in November. The December rate hike for the Fed is still firmly priced in.
Price action on the S&P 500 daily chart highlights the key respect of the $2,600 to $2,620 zone. Stocks are battling to stay out of the red and above the key $2,675 level for 2018. If we do see a daily close above $2,690, we could see upside target the 50-day SMA at $2,758. A major bullish stance may not be achieved until we see confirmation that the Fed brings down their rate forecast and more confirmation of trade progress among China and the US. Sentiment is still bearish and many will look to try to fade today’s rally. If we see the key support zone breached, price could target the $2,544 followed by $2,470.
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