Stocks add to gains this morning after China cuts tariffs. The S&P 500 Index is poised for its best week since June 2019 after opening about 0.3% higher this morning. The news that appears to be helping most this morning is that China cut tariffs by 50% on $75 billion in U.S. goods. Those tariffs had been implemented in September 2019 in response to U.S. tariffs on Chinese goods put in place at that time. Investor sentiment this morning may also be garnering support from hopes of coronavirus containment and Wednesday’s encouraging U.S. economic data. It’s unclear if politics (Iowa caucus results, impeachment acquittal) are impacting trading. Major Asian stock market indexes rose between 1.7% and 2.6% overnight while European stocks are higher by about 0.5% in midday trading.
U.S. stock leadership continues. We are getting closer to a potential upgrade of developed international equities but are not quite there yet. Among the positives: Improving global leading economic indicators, our expectation that U.S. dollar strength will abate, and attractive relative valuations. The MSCI EAFE Index trades at a larger-than-average 20% discount to the United States (S&P 500) based on forward price-to-earnings ratios. U.S. stocks have outpaced their international counterparts by about 4 percentage points year to date. Look for more on our still-cautious but improving developed international stock market outlook in our upcoming Weekly Market Commentary.
As goes January, so goes the year? A popular Wall Street investment axiom is the January Indicator, which says as goes January, so goes the year. There may be something to it, as the final 11 months have been higher 86% of the time when the S&P 500 Index was higher in January, versus higher only 59% of the time when the first month has been lower. Given the S&P 500 closed lower in January, this is worth taking a closer look. We will discuss this later today on the LPL Research blog.
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