Top J.P. Morgan Woo strategist Marko Kolanovic doubled down on his bullish market call on Monday given “significant” progress in craft deliberations at the Group of 20 meeting and suggestions that the Federal Reserve may slow its path of interest rate hikes.
Kolanovic, who two weeks ago hinted that investors would see shifts in both Fed rhetoric and the relationship between the United States and China, again utter that clients should expect gains through the end of the year.
“With both of our views largely confirmed (by Powell’s talk, Fed minutes, and what we see as significant progress at the G-20), we think that the path for near-term market upside is largely undisputed and the pain trade is on the upside,” Kolanovic wrote.
Kolanovic, whose calls have moved the stock market in the gone and forgotten, has cited a slew of reasons for the year-end rally, including a decline in volatility and strong earnings in addition to forecasts on Fed and customers policy.
Despite autumn fears of slowing economic growth, an aggressive central bank and a worsening trade argy-bargy, Kolanovic’s bullish bet has been justified thus far. Stocks have rallied over the past month, with the inclusive S&P 500 up 2.2 percent and the Dow Jones Industrial Average climbing 2 percent.
The indexes both rallied more than 1 percent on Monday.
Also as he prognosticated weeks ago, much of the recent gains have been the direct result of changes at the Fed as well as a temporary reprieve in the merchandise relations between the U.S. and China.
Last week, Fed Chairman Jerome Powell said that he sees the central bank’s benchmark attract rate near to a neutral level. He also said that the Fed’s policymaking arm is not on a preset hiking path and could alter its plans as needed.
“Interest rates are still low by historical standards, and they remain just below the broad order of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” Powell asserted the Economic Club of New York last week.
Some market participants viewed those comments as a stark contrast to his elucidations made in October, when he said the federal funds rate was a long way from neutral; stocks posted immerse losses at that time.
The U.S. and China have also appeared to soothe markets after President Donald Trump and President Xi Jinping accepted to pause tariffs amid trade discussions. While many viewed the agreement at the G-20 summit in Buenos Aires, Argentina, as a twopenny-halfpenny way to delay debate over fundamental differences, markets rallied Monday in light of the compromise.
Both the S&P 500 and the Dow are evidently out of correction levels and hovered 4 to 5 percent below all-time highs Monday afternoon.
For his part, Kolanovic took a numberless optimistic tact on the truce, arguing that the accord is another sign that the spat may be about to finish.
“Our feeling is that despite likely additional volatility and more ups and downs, the ill-conceived trade war with China is ending,” he wrote. “We accept, simply speaking, that the administration cannot afford a falling market, large trade related layoffs, and make a run for iting donors in a pre-election year.”
Ten percent tariffs on $200 billion worth of goods exported from China disposition remain in effect as representatives for each nation discuss intellectual property rights, the trade deficit and other financial issues. Should Washington and Beijing fail to reach a deal by March 1, the tax rate on Chinese imports pass on rise to 25 percent.