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Dow Jones and S&P 500 ‘Future’ Lies at Trump’s Desk Now!

Mohit Oberoi, CFA - Author

Nov. 8 2019, Published 7:30 a.m. ET

The Dow Jones and S&P 500 futures are pointing to a flat opening today. The Dow surged to a record high on Thursday amid optimism about the US-China trade deal. China’s better-than-expected October trade data released today. Although the earnings season is slowing down, markets will need concrete action on the US-China trade deal to support the momentum. The S&P 500 and Dow Jones’s future might be in President Trump’s hands.

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Dow Jones

The Dow Jones Index recorded a high on Thursday. Notably, while the S&P 500 rose to record highs, the Dow lagged behind. Boeing’s (BA) underperformance impacted the Dow Jones. Boeing is the Dow’s largest component. Meanwhile, a flurry of strong economic data and the Fed’s rate cut helped buoy the sentiments. China’s economic data also showed that the economy might be bottoming out. The data released today showed that China’s exports and imports fell less than expected. However, the Shanghai Composite Index and the Hang Seng Index closed in the red today. The markets reassessed trade deal optimism. The Dow Jones and S&P 500 futures are also pointing to a flat opening today.

Recession fears subside

China’s October manufacturing activity was also better than expected. The US third-quarter GDP growth shattered expectations. Other economic data points have also looked strong. Earlier this year, some economists saw the yield curve inversion as a sign of a looming recession. Recession fears triggered a sell-off in the Dow Jones Index and the S&P 500. As we noted multiple times, while growth rates have slowed down, a recession looks far-fetched for now.

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Dow Jones, S&P 500 and Trump

President Trump watches the Dow Jones Index and the S&P 500 frequently. He tweets when markets hit a milestone. On Thursday, he tweeted, “Stock Market up big today. A New Record. Enjoy!” President Trump even advised buying stocks in December 2018 after the markets plunged. However, Berkshire Hathaway’s Warren Buffett didn’t buy stocks aggressively in the fourth quarter of 2018. While President Trump apparently sees the market returns as an indicator of his performance, it’s worth noting that markets have crashed whenever he has raised the pitch in the US-China trade war.

Trump’s trade war

Last year, President Trump spooked markets with his “Tariff Man” tweet. While he has toned down his Twitter rhetoric since then, steps to escalate the trade war have led to a sell-off in the Dow Jones Index and the S&P 500. This year, we saw a market crash in May and August when President Trump raised the heat in the China trade war. Incidentally, the de-escalation in the US-China trade war helped propel the Dow Jones Index and the S&P 500 to a record high this month.

Dow Jones future at Trump’s desk

Currently, the Fed has also put the ball in President Trump’s court after lowering rates by a cumulative 75 basis points this year. Corporate earnings have also been decent. Now, markets will need some support from President Trump for the Dow Jones and the S&P 500 to reach greater heights. He can support markets in many ways including fiscal measures, infrastructure investments, and positive comments on the US-China trade talks. However, markets expect some sort of real action in the US-China trade talks. Despite a lot of sweet talk around the US-China trade talks, there has been a breakdown on more than one occasion,

Meanwhile, both the S&P 500 and the Dow Jones have looked strong in the past three years since the election. A strong market might help President Trump in the 2020 election. Can he support the S&P 500 and Dow Jones’s future?  We’ll keep our fingers crossed.


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