Several weeks ago we mentioned that from a macro perspective, the market was being influenced by earnings concerns, global economic slowing, fears about rising interest rate, and the on-going trade war with China.
Well, as we approach the end of the year, a number of these issues are either behind us, or about to be. Earnings season proved to be as expected though outlooks, in some instances, were very modestly muted (industrial companies, cyclical companies, and some consumer discretionary companies).
Yet a number of technology companies, particularly those focused on cloud, infrastructure, software, and some areas of communications expressed optimism about future growth, and may in fact be accelerating. Similarly, areas of healthcare, notably biotechnology, are in the early stages of a very real innovation cycle, and equities here may have turned the corner.
While concerns over slowing global growth have been confirmed, the sorting mechanism of the stock market, what to own and what not to own in a changing environment, is well underway. Fears over rising interest rates have reversed. In fact, we have gone from investor expectations for a continuous string of Federal Reserve rate hikes- to one and done, or perhaps no hike at all when they meet next week. All the while, equity multiples have been compressing.
So, we are left with China! China! China! And while it is difficult to sort through the fog of tweets and misinformation about where trade discussions stand at any moment. The Chinese economy is suffering. US companies, most recently Apple, have made noise about relocating manufacturing from China if 25% tariffs are enacted and, as a result, the Chinese have begun to make some concessions. Any investor perception about a positive change in this relationship is likely to spark very real buying enthusiasm.
Which begs the question- are we set up for a dramatic Santa rally?