Positive EU Trade News Among 4 Factors Driving the Market Uptrend
A positive trade development with the European Union was among the headlines that are pushing positive sentiment.
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On Friday, the S&P 500 fell into the gap that was created when tariffs on China were postponed but held support at the 200-day simple moving average. There was a strong likelihood that without some positive news flow, that gap would eventually be filled.
Three positive developments came into play after the Memorial Day holiday to put the market back on track and undermine technical worries about the unfilled gap.
The major headline was an agreement by President Trump to delay tariffs on the European Union until July. The president had hinted at some additional tariffs last week due to frustration with the pace of negotiations, which appeared to be sufficient to light a fire under the EU.
The postponement of tariffs might not have been enough to hold on to gains, but there were two other issues that helped the bullish cause. The first was a sharp increase in consumer sentiment. Sentiment was surprisingly strong, with some of the concerns about inflation and the economic fallout of tariffs being set aside. There has been endless speculation about tariffs being a wrecking ball that would destroy the economy, but despite the constant negativity, there has not been any hard data to back up the pessimism. Consumers appear to be embracing the possibility that perhaps the Trump economic plan won’t be a disaster.
A further positive was some relief in interest rate pressures. Bonds rallied, and the dollar bounced, which caused rates to drop. The reason for this is partially the same thing that helped to improve consumer sentiment — there is less worry about the impact of tariffs. In addition, Japan is taking some action in its bond market that is helping to relieve some pressure.
A fourth factor that helped matters is that there is still a very high level of bearishness, which means that many investors are underinvested and have cash on hand. Action like we had on Tuesday is going to cause concern about missing out on a better market.
There are still plenty of economic risks, and no major trade deals are in place yet, so the potential for some big swings in headlines is possible, but for now, the news is positive, and the mood is improving, which is helping the technical action.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
