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US markets reach fresh highs

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

While the UK carried on the Christmas festivities on Boxing Day, yesterday the US stock market carried on with festivities of its own, on the back of the Christmas Eve pronouncement by President Donald Trump that “the deal is done”.

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Fresh hopes that the escalating tension between China and the United States will finally be brought down to a simmer saw Wall Street hit new highs on Thursday. The day after President Trump’s claim that a deal was “just being translated right now” it was reported that a Chinese foreign ministry spokesman had said the two sides were discussing a signing ceremony.

There’s good reason why such a cessation of hostilities would buoy the market in such a way. Since the start of the trade war, back in early 2018, Donald Trump has imposed tariffs on $360 billion of Chinese goods. That has sparked wild gyrations in US markets, prompted the Federal Reserve to cut interest rates three times, and forced global companies to alter their supply chains.

Of course, the substance of the agreement that is signed is what is most important. As well as why now? But until we get the detail, there is no doubt that the step-change has been warmly welcomed by the markets; with all three major US stock indices reaching new records yesterday.

The Nasdaq‘s climb gave the technology-heavy benchmark its 11th consecutive day of positive returns, as well as its best run since a 12-day stretch in July 2009.

The S&P 500 in New York, edged above Monday’s record close, while the Dow Jones Industrial Average extended gains from earlier in the week.

A signed deal would be something, potentially, to celebrate, after more than almost two years of “will they, won’t they, how bad can this get?” questions that have spooked global markets and persistently followed the US President around. Not least when it comes to the equally persistent question of whether the US is about to tip into recession.

That question of recession will no doubt persist; indeed half the chief financial officers polled for a recent Duke University survey said they expect a recession over the next year. However, consumers have remained surprisingly buoyant in 2019. Add in the latest data too from the US Department of Labor, which revealed that US jobless claims had fallen 13,000 to a seasonally adjusted 222,000 in the week ending December 21 and you could argue that there is potentially more reason to cheer continued growth, than fear the long-dreaded downturn in 2020.

Certainly James Thomson, manager of the Rathbone Global Opportunities Fund, whose global fund is two-thirds invested in US stocks, firmly believes so. He expects the US to continue leading the pack, with America’s ‘rock star’ companies continuing to provide the best hunting ground for investment ideas.

And let’s not forget China’s prospects in past trade war territory. Ayesha Akbar, manager of the Fidelity Select 50 Balanced Fund, is also bullish but she thinks the winner next year will be China, with a resolution of the Trade War providing a further tailwind for Chinese shares.

To hear more on their views on the year to come, as well as those of Merian’s Richard Buxton, take a look at our Outlook video for 2020.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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