Does Investor Confidence Mean a Bullish or Bearish Signal?
The market is currently hitting all-time highs while consumer confidence is up. But, what does this truly signal for the market – is it bearish or bullish? Read on to get the details…
All-Time Highs – the trade and inflation worries that seemed to weigh down the markets in the first half of the year have seemingly subsided, with the market now hitting all-time highs.1 We would argue that there was an interesting tug-of-war in the first quarter as the corporate tax cuts sent earnings soaring but stock prices remained volatile as a result perhaps of trade and global economic uncertainty. Now that the market has had time to price-in the true nature of the ‘trade war,’ perhaps those worries have subsided.
Oil Prices on the Rise – oil prices hit their highest close in nearly four years last week, climbing over $80 a barrel after OPEC members decided not to raise production. At the center of OPEC discussions is what to do after the new U.S. sanctions banning Iranian oil take effect in November, with some members arguing that they want to see a rise in demand before increasing production. The message from OPEC seemed fairly clear – they prefer higher oil prices in spite of the U.S.’s objections.2
While you can’t predict how the news will shape the market or when the next bear market will occur, you may be able to better prepare for what’s to come with the right investment strategy.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies. Our Dean’s List describes five of our top-ranked investment strategies .3
If you have $500,000 or more to invest and want to learn about five of our top strategies, click on the link below.
New Tariffs Take Effect – on Monday, new tariffs went into effect that levy a 10% duty on $200 billion worth of Chinese goods. China responded immediately with a 10% tax on $60 billion of U.S. imports, which at this point means that virtually all U.S. imports to China are subject to a tax. The U.S. responded by ratcheting up the dispute even further, threatening an additional tariff on $257 billion of Chinese goods, which if implemented would essentially cover all $505 billion on U.S. imports from China. The U.S. has also indicated that the current 10% tariff rate could jump to 25% later in the year, which in our view would turn the trade dispute from a spat into a war. At 10%, we would argue that the costs can be absorbed by corporations and consumers without materially affecting behavior, but at 25% the story would arguably change.5
The Fate of Canada – back in August, the White House sent Congress a formal declaration that it intended to sign a new trade deal with Mexico – even if Canada was not involved. Many business leaders and members of Congress have been vocal in opposition to a trade deal that does not include Canada, but the Trump administration continues to take a hard line on our neighbor to the north. The impasse threatens the future of the 24-year old NAFTA treaty, and particularly leaves much uncertainty among farmers and automobile makers from both countries
The Trump administration’s threat raises uncertainties for business leaders and farmers. Canada purchased some $20.6 billion in food and farm products from the United States in 2017, and about 1.8 million cars purchased by U.S. consumers were built in Canada. U.S. exports of beef to Canada hit a 10-year high in 2017. The supply chains are heavily interwoven, and it’s difficult to argue how a bilateral trade deal with Mexico would not disrupt them badly.6
Consumer Confidence Hits 18-Year All-Time Highs – in spite of trade uncertainty and higher prices at the pump, the U.S. consumer is about as confident as he/she gets. The Conference Board’s index of consumer confidence rose to 138.4 from 134.7 in August, which puts the reading at its highest level since September of 2000 – when the technology boom was basically peaking. Whether the high confidence reading is a bullish or bearish signal remains to be seen, but history suggests that it could actually be both – indicating a bit more runway for the bull while also signaling that the cycle is nearing the very late stages.7
No matter how much runway is left for the current bull market, it is important for investors to prepare for a potential bear. And the right investment strategy can make an enormous difference over the long haul.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.8 Our Dean’s List describes five of our top-ranked investment strategies.9 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 The Wall Street Journal, September 23, 2018, https://www.wsj.com/articles/oil-producers-signal-confidence-in-managing-supply-disruptions-1537698598?mod=djem10point
3 Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
4 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
5 The Wall Street Journal, September 24, 2018, https://www.wsj.com/articles/china-says-the-trump-administration-is-a-trade-bully-as-new-tariffs-take-effect-1537777015?mod=djem10point
6 The Wall Street Journal, September 25, 2018, https://www.wsj.com/articles/nafta-deal-could-move-ahead-with-only-mexico-according-to-u-s-trade-representative-1537888570?mod=djem10point
7 The Wall Street Journal, September 25, 2018, https://www.wsj.com/articles/u-s-consumer-confidence-rose-in-september-1537885594?mod=djem10point
8 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
9 Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
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