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Stock Market Forecast – Prices Rise as Seasonality Points to Higher Prices

US stocks moved higher on Tuesday following a three day weekend in the US capped off by the Presidents Day holiday.  Most sectors where higher, with healthcare and industrials bucking the trend. Materials led the markets higher, as gold miners surged as gold prices broke out and drove the entire metals sector higher. The leader in the materials space was Freeport McMoran which led the charge rising 6.6%. Stocks were also driven higher by a rising sentiment that trade negotiations between the US and China would produce a good outcome.

Materials Are Leading the Markets

The metals space is receiving a lift from accommodative central banks around the globe. The US Fed has stated that they plan to put off additional hikes and the market has now priced in no rate hikes for the balance of 2019. The ECB is also evaluating providing regional banks with additional loans. The Bank of England is now on hold until the issue related to Brexit are settled.  The dovish outlook is weighing on the US dollar which is paving the way for higher metals prices. Since metals are generally priced in US dollars, a lower dollar makes gold prices less expensive in other currencies.

Trade Negotiations are Buoying Sentiment

Trade negotiations with China are expected to resume this week, as the White House is racing to strike a deal that will result in long-term reforms, which could provide the backdrop for a higher stock market. This would prove that tariffs are an effective way to open markets around the world, which would help Trump with his re-election campaign. The US economy has slipped following a 35-day shutdown, which would prove to generate headwinds for Trump if the election was today. The president is pursuing an ambitious agenda that envisions remaking US commercial ties from Asia to Europe to North America.

The Seasonality of Stocks Points to Higher Prices

The seasonality of US stock prices in March and April point to higher prices. In evaluating the performance of US stock prices over the past 20-years, there appears to be a consistent pattern. Generally, the Dow Jones Industrial Average rises 65% of the time in March, by an average of 1.5%. In April, the Dow Jones Industrial Average rises 80% of the time for an average gain of 2.3%.  While seasonality does not always work, the markets are now buoyed by a Fed that has moved out of the way. If the US and China are able to come to agreement stocks will rise into first-quarter earnings. The longer it takes for the US and China to make an agreement the higher prices will rise in expectations of an agreement. The markets will continue to buy the rumor and will likely sell the fact, so traders should be ready to take profits once an agreement is reached.

This article was originally posted on FX Empire

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