After a week of making new highs, the market might be entering “maintenance” mode going into the weekend
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Let’s put things into perspective: The latest trade headlines aren’t as positive, and the S&P 500 is down just three points in pre-market trading. That reflects real strength. Another overlooked story this week that plays into the optimism theory is gold being down 4%. Interest rates are up and people don’t seem to be as worried about the economy, so those two things are working against gold.
Despite some of the enthusiasm we saw earlier this week, it’s still too early to get optimistic about the trade war training wheels coming off the market. Nothing is for certain until signatures are on paper. The S&P 500 Index might have extended its run above 3000, but until something solid comes out on a deal between the U.S. and China, it might be prudent to be very careful about assuming everything is great. It’s not an easy road to get to a trade deal, as the last two years have shown.
At the same time, pressure on Utilities, Real Estate, and some other so-called “bond proxy” sectors is mounting. These sectors tend to get hurt when Treasury yields rise, because some investors might think they can get close to the same yield from fixed income investments as they would from dividends.
That forward P/E level could be an important number to watch over coming weeks as analysts continue to work on earnings estimates for Q4 and 2020. If it starts climbing, maybe there’s cause for concern about valuation. If it stays about where it is, it might indicate that those improved company outlooks are getting factored in.
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