The S&P 500 Starts 2020 At New Highs, Runs Into Geopolitics

The last two weeks have been surprisingly busy. Picking up 2020 from where we left off in 2019, the S&P 500 (Index: SPX) continued to record new highs through 27 December 2019, reaching a total of 35 record highs during 2019. Then, after a brief pause, the S&P 500 set one more new record high of 3,257.85 to open 2020, before retreating 23 points as geopolitics dampened investor outlooks in early 2020.

All this combined to place the S&P 500 right in the middle of the redzone forecast range we added to our alternative futures chart several weeks ago.

That range has another day or two to go before it runs out, where we’ll introduce our first spaghetti forecast chart to anticipate the S&P 500′s future in 2020-Q1 next week.

We would be remiss if we didn’t point out that the last 22 of the S&P 500′s new closing highs coincides with a period during which the U.S. Federal Reserve actively flooded U.S. money markets with liquidity, which began on 11 October 2019 with the Fed’s announcement it would begin buying massive quantities of U.S. Treasury bills.

That quantitative easing-like policy has taken some of the pressure off the Fed to announce additional rate cuts, where according to the CME Group’s Fedwatch tool through the close of trading on Friday, 3 January 2020, investors are split in betting whether 2020-Q4 will see a quarter point rate cut or a quarter point rate hike.

That particular outlook may be very short lived given the onset of new information to influence how far into the future investors may focus their attention. Here are the headlines we noted throughout the holiday season for U.S. markets.

Monday, 23 December 2019

• Oil steadies as Russia touts easing OPEC+ output
• U.S. new home sales rebound in November; October sales revised lower
• Bigger trouble developing in Canada: Canada economy shrinks for first time in eight months, hit by U.S. auto strike
• Wall Street posts records amid trade optimism; Boeing juices Dow

Tuesday, 24 December 2019

• Oil rises on supply cut pledges and slow return of Gulf field
• Bigger trouble developing in Mexico: Mexico economy shrinks in October, making rocky start to 4th quarter
• S&P 500, Dow pause near records in Christmas Eve trade

Thursday, 26 December 2019

• Oil up 1% at highest since September on trade pact and crude supplies
• Trump says he and Xi will sign China trade deal
• Bigger trouble developing in Asia:

• Singapore November factory output falls most in four years
• South Korea’s December exports to post slowest fall in 8 months: poll

Bigger stimulus developing in China: China to take measures to support jobs amid economic slowdown

Nasdaq tops 9,000 on boosts from Amazon, trade optimism

Friday, 27 December 2019

• Oil hits three-month high on falling oil stocks, investor optimism
• Bigger trouble developing in Japan: Japan’s output, retail sales fall, signaling economic strains
• Eurozone gloom: ECB’s Holzmann: Return to positive interest rates in 2020 unlikely
• Previous stimulus showing signs of traction in China: China’s industrial profits grow at fastest in eight months, but sustained recovery uncertain
• S&P 500, Dow eke out records; Nasdaq win streak ends

Monday, 30 December 2019

• Oil price rise muted in 2019 despite sanctions, supply cuts, attack in Saudi Arabia
• China’s Liu He to sign Phase 1 trade deal in U.S. this week: report
• Wall Street slips from records as investors lock in year-end gains

Tuesday, 31 December 2019

• Oil analysts bet on modest price gains in 2020 as supply shrinks

• Bigger trouble developing in Saudi Arabia: Saudi economy contracts 0.46% in third quarter as oil output slumps

Bigger trouble, signs of stimulus getting traction in China:

• China’s service sector activity grows at slower pace in December: official PMI
• China’s factory activity grows as easing trade spat revives demand

Wall Street edges higher; S&P closes decade with nearly 190% gain

Thursday, 2 January 2020

• Oil edges up on Mideast tensions, trade optimism
• Bigger stimulus developing in China: China cuts banks’ reserve ratios again, frees up $115 billion to spur economy
• Signs of previous stimulus gaining traction in Asia:

• South Korea December factory activity returns to growth as export orders expand most in 18 months: PMI

Bigger trouble developing in the Eurozone: Euro zone factor downturn deepened at end of 2019: PMI

Wall Street starts 2020 with new records on China stimulus, trade hopes

Friday, 3 January 2020

• Oil, safe havens surge after U.S. strikes kill Iran commander

• Fed’s Kaplan: oil markets to have ‘more muted’ reaction to U.S.-Iran tensions – CNBC

Bigger trouble developing in the U.S.: U.S. factory sector in deepest slump in more than 10 years

Swarm of Fed minions claim victory in setting correct policies for 2020:

• Fed policymakers broadly see eye to eye on 2020 outlook
• Fed policymakers agree rates on hold for ‘a time’
• Fed’s Barkin says it’s time to let rate cuts work through economy
• Fed’s Evans: U.S. economy looks good for GDP growth of 2% to 2.25% for 2020: CNBC
• Fed’s Mester, who warned of inflation risks, says current policy ‘well calibrated’ (Wasn’t she often wrong last year? How does she know now?)
• Fed may need new approach to boost inflation, Daly says

S&P 500 snaps win streak as Middle East tensions push down Wall Street

Over our holiday break, Barry Ritholtz continued summarizing the positives and negatives he found in the economics and market-related news over both weeks of 2019′s year-end holiday season.