Dow Jones Winning: Why China’s Stock Market Surging For First Time in 3 Months is Crucial

For the first time in 3 months, the Chinese stock market has recorded a 3 percent increase triggered by the optimistic prospect of a comprehensive trade deal. The Dow Jones is nearing the 26,000 point mark after initiating a strong rally in the past two weeks.

The solid movement of the CSI 300 Index, which replicates the performance of top 300 stocks in the Shanghai and Shenzhen stock exchanges, has shown that investors in Asia highly anticipate the trade talks with the U.S. to see significant progress in the weeks to come.

The CSI 300 Index made robust gains in anticipation of satisfactory trade talks between the US and China. | Source: TradingView

The Dow Jones recorded a 1.3 percent rise on February 17 and is en route to breaking out of the 26,000 point level for the first time since November.

Dow Jones Rally Expected, Analysts Say Trade Deal Fears are Exaggerated

With jobs growth and household balance sheets at record highs, the U.S. is arguably in a better position than China in any given time frame.

The growing number of defaults in China has placed more pressure on the domestic market and the authorities to achieve a deal with the U.S.

A full-scale trade agreement is crucial for both countries in the short-term as it would alleviate significant pressure from the Chinese economy and strengthen the rally of the Dow Jones and the U.S. stock market in general.

The stock market of China and the rest of Asia are recovering in a period during which the outcome of the trade deals remains uncertain.

The Trump administration has publicly expressed its intent to consider a 60-day extension on the March 1 deadline, a move that could destabilize major markets.

However, the Chinese market has rebounded strongly in the last 24 hours, demonstrating the growing confidence of investors in the prospect of the ongoing trade talks.

Baird vice chairman for equities Patric Spencer said that the fear around the result of the trade talks has been overblown. With the newly adopted patient approach by the Federal Reserve, the executive stated that the market is in a decent place to maintain its momentum.

“The market has been worried about the China tariffs but Trump wants a deal and a lot of the fears are generally overblown. The more patient terminology from the Fed has been fairly accommodative for markets so far.”

Recently, as Admisi strategist Marc Ostwald said, investors have begun to focus on the positives over potentially negative factors that could lead the stock market to the downside.

Similarly, Direxion Investments managing director Paul Brigandi said last week that investors in the U.S. market have been trading based on momentum and the strong performance of the Dow Jones.

The Dow Jones Industrial Index has also seen momentum stick since the turn of the year. | Chart via TradingView

As such, if the trade talks with China continue to show progress in certain areas, the near-term rally of the Dow Jones and the rest of the U.S. market could be sustained.

“Momentum is a key component right now. A lot of people are jumping in to get on board,” he said.

Some Difficulties in the Trade Talks

The stalemate in the trade discussions with China seems to derive from the requests of the U.S. on fundamental changes to the structure of the Chinese economy.

The U.S. government has reportedly asked Chinese negotiators implement significant changes in the country’s industrial policies.

Despite the speed bump in the U.S.-China trade talks, the optimism stems from the intent of both countries to move forward with the discussions without imposing additional tariffs or restoring previous tariffs.

Most of the positive movements in the stock market of the U.S. and China are fueled by the certainty of investors that while the trade deal could be pushed beyond the original deadline, the two countries are not in a rush to impose higher tariffs in the short-term.


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Author: Joseph Young 
Image Credit: Source: AP Photo/Richard Drew)

Dow Jones Sess Stunning 10% Recovery, But This One Key Factor Could Fuel Even More Growth

Since January 3, within a one-month span, the Dow Jones Industrial Average has recovered from 22,682 points to 25,102 points, by more than 10 percent.

It has been a stunning 30 days for the Dow Jones, which was at risk of entering a bear market after falling by 19 percent from its all-time high.

The short-term recovery of the Dow was mainly attributed to the Federal Reserve rate, which is expected to remain stable in the range of 2.25 percent to 2.5 percent.

But, another key factor may have largely affected the sentiment around the U.S. stock market throughout the past 48 hours.

Jobs, Jobs, Jobs: U.S. Shutdown Has Minimal Impact as Dow Jones Recovers Off of It

A Reuters report revealed that contrary to the expectations of investors, the shutdown of the U.S. government last month had minimal impact on jobs.

Throughout the 34-day period, more than 800,000 federal workers missed two paychecks, which account for around 0.5 percent of the workforce of the U.S.

Although the unemployment rate of the U.S. increased to 4 percent as a result of the shutdown, the Labor Department said it had no “discernible” effect on job growth.

Most major industries recorded a rise in job growth from December to January.

  • Employment in construction rose by 52,000 in January
  • Employment in manufacturing increased by 13,000 in January, following a 20,000 increase in December
  • 8,000 federal workers were hired by the government in January

Job growth rose In industries including healthcare, finance, and transportation as well, eliminating the concerns of investors that the shutdown could slow down the recovery of the U.S. Stock market.

With job growth strengthening and increasing at a gradual pace and the Federal Reserve vowing to remain patient on rate hikes, the stock market is expected to sustain its momentum throughout the short-term.

Another Variable: U.S.-China Trade War, Trump Remains Positive

Earlier this week, the U.S. government filed more than 20 charges against Chinese telecom and electronics giant Huawei, fueling the tension between the U.S. and China.

The South China Morning Post reported that the trade talks had been overshadowed by the Huawei indictments, which analysts foresee could lead to a substantial fine for the Chinese company.

A professor at the National University of Singapore David De Cremer said:

“It is likely that Huawei will receive a very big fine. Such a decision would communicate to allies of the U.S. to join in this battle and push Huawei out of their markets.”

If the indictments lead to an export ban on Huawei, local analysts in China said that it could have a major impact on both Huawei and its partners.

Crucially, it could heavily affect the “Made in China 2025” roadmap set forth by the government of China that may alter the outcome of the trade talks.

Jia Mo, a Shanghai-based analyst, told SCMP:

“Imposing an export ban on Huawei will inevitably have a tremendous impact, whether for Huawei or for its business partners in the US.”

Analysts emphasized that the Huawei case has added another uncertainty to the trade discussions between the U.S. and China.

IDC Asia-Pacific vice president Simon Piff added:

“Whether [the Huawei indictments] are due to security concerns, business concerns or political concerns are now so blurred it is difficult to tell what the outcome would be.”

But, U.S. President Donald Trump has said that the meeting is going well with good intent from both sides despite the Huawei dispute, which could serve as a catalyst for the short-term growth of the U.S. economy.

If the job growth is sustained throughout the first quarter of 2019 and the Federal Reserve maintains its rate in the 2.25 to 2.5 percent range, the U.S. stock market could aim for a full-fledged recovery from its December downturn.


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Author: Joseph Young 
Image Credit: Featured Image from Shutterstock

As Dow Jones Rallies, Trading Bots Tell Investors to Short Everything

The Dow Jones Industrial Average is rebounding, but computer trading bots are alerting investors to short everything.

Trading Bots Suspicious of Dow Winning Streak

Kathryn Kaminski (AlphaSimplex)

According to quantitative investment firm AlphaSimplex, algorithmic trading bots suggest shorting three major asset classes: stocks, currencies, and commodities.

“Pretty much any way you run the models, you end up net short a lot of asset classes,” Kathryn Kaminski told the Wall Street Journal. “This is like the chaos bet.”

Kaminski is the chief strategist at AlphaSimplex Group in Massachusetts. She says the last time the trend-following computer trading bots reversed positions so dramatically was in 2007 and 2008.

According to Kaminski, the algo trading bots have moved from holding long positions in stocks, currencies, and commodities in the third quarter of 2017 to shorting them by 2019.

In other words, the bots are betting that those asset classes will drop, signaling a potential sell-off.

Mathematical Models Not Infallible

However, the trading positions of the bots were assessed based on bearish economic data from late-2018.

At the time, the stock market was roiled by escalating US trade wars with China, as well as the Federal Reserve’s fourth rate hike in 2018.

While many analysts believe algo trading is the wave of the future, others say quantitative analysis has its limits. They note that mathematical models cannot always predict where the markets will move.

“The story has been sold almost like a 2008 protection trade,” says Chris Solarz, a managing director at Cliffwater LLC. “But it’s not necessarily true that they will offset the next crisis, because we don’t know what that’s going to look like.”

Jamie Dimon: Chill Out, No Recession Ahead

Meanwhile, many on Wall Street believe the market plunge in late-2018 was an overreaction, and that the mass sell-off is over.

The Dow Jones closed Wednesday (Jan. 9) at 23,878, up 91 points, posting a four-session winning streak.

The Dow Jones is rallying after being decimated in late December 2018. (Yahoo Finance)

JP Morgan CEO Jamie Dimon says the media-hyped anxiety about an impending global recession is overblown. Dimon insists there is no recession on the horizon, as CCN reported.

The billionaire banker says everyone needs to take a chill pill and calm down. The global economy may be in a “slowdown,” but a recession is not around the corner, he says.

It’s very possible we have a slowdown. People [should] take a deep breath.  It’s not like we’re going into a global recession.

Meanwhile, investment managers like hedge funder Bill Miller say an uncertain stock market could be good news for bitcoin investors.

“Bitcoin basically has no statistical correlation with stocks or bonds, which makes it an excellent diversifier,” Miller says.


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Author: Samantha Chang
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