By: Wayne Duggan
The first half of 2019 has been extremely volatile and unpredictable for investors. The S&P 500 has certainly been climbing the proverbial “wall of worry,” gaining an impressive 17.7% despite concerns over slowing global economic growth and the ongoing trade war with China.
But with the S&P 500 trading at new all-time highs, investors are already looking to the second half of 2019 for which catalysts could trigger the next leg higher—or the next spike lower—in the market. Here are five major market catalysts to watch in the second half of the year.
1.U.S. Trade Negotiations With China
The trade war has been the biggest uncertainty of the first half of 2019. Many investors expected a deal to be reached by 2018’s third quarter. Instead, the U.S. and China exchanged another round of tariff hikes and threats in May when trade negotiations broke down. U.S. President Donald Trump announced last week that he and Chinese President Xi Jinping will be meeting at the G-20 summit starting on June 28 to discuss the ongoing trade talks personally. A trade deal between the U.S. and China has the potential to be the biggest bullish catalyst for stocks in the second half of the year. However, another trade talk breakdown would likely send the market tumbling once again.
The Federal Reserve hasn’t indicated that it intends to cut interest rates in 2019. However, the market has gotten a different idea from the committee’s language. The bond market is currently pricing in a 100% chance of at least one rate cut by the end of the year, according to the CME Group FedWatch tool. Falling interest rates are typically bullish for stock prices, assuming they don’t happen in the middle of an economic downturn. Only time will tell whether it takes a full-blown recession for the Fed to deliver a much-anticipated cut.
Since the U.K. voted to leave the European Union back in June 2016, the Brexit situation has been utter chaos. That furor seems to be coming to a head in 2019. The U.K. currently has no prime minister, no Brexit plan and a looming October 31 deadline before a so-called “hard Brexit” is triggered. Investors have no idea how this situation will play out. ING recently predicted that the most likely scenario is that U.K. parliament will pass a no-confidence motion under the next prime minister, triggering a general election and at least another three-month delay to Brexit.
In March, the European Central Bank cut its 2019 Eurozone growth forecast from 1.7% to 1.1%. In April, the International Monetary Fund reduced its 2019 global growth forecast from 3.5% to 3.3%. Last week, the Federal Reserve said U.S. GDP growth will slow from 3% in 2018 to 2.1% this year. Analysts are expecting 0% EPS growth from the S&P 500 in the third quarter and just 4% revenue growth. This all means that Investors will be watching earnings growth carefully in the second half of the year for signs of a revenue slowdown. If these estimates continue to fall, share prices will likely follow.
The FAANG group of stocks—Facebook, Amazon, Apple, Netflix and Google-parent company Alphabet—were consistent market leaders throughout the decade-long bull market. However, these companies have been so successful in their respective fields that they are now getting increasing scrutiny from antitrust regulators. Apple has gotten heat in Europe for its potentially noncompetitive third-party App Store terms. Democratic presidential candidate Elizabeth Warren has said she wants to break up Google, Amazon and Facebook. The U.S. Department of Justice is reportedly preparing for an antitrust probe of Google. It’s difficult to determine what might happen to investor sentiment should regulators drop the hammer on these five tech sector stalwarts.
Disclosure: the author holds no position in the stocks mentioned.
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