This week has been a disappointing one so far for investors who’ve been hoping a Santa Claus rally will push the stock market to new highs. Instead, worries about economic stability and the threat of a multi-front trade war pushed the Dow Jones Industrial Average and the S&P 500 lower on Monday and Tuesday.
Wednesday could be a tipping point for markets, though. With two important economic indicators due to come out and the President set to meet with his German counterpart, Angela Merkel, later in the day, Wednesday marks an important potential turning point for the Stock Market. Ahead of the bell, the Dow made its way markedly higher on news that a trade deal is closer than investors initially believed.
Here’s a look at how the day could shake out.
US ADP employment data will kick off the day on what analysts expect to be a high note. The report is expected to show that 138,000 new jobs were created in November, an increase from last month’s 125,000.
The ADP data shows only private-sector job creation but makes for an important litmus test for the labor market ahead of Friday’s more comprehensive non-farm payroll data from the Labor Department.
If the figure comes in at or above expectations, the Dow could see a bump as positive employment data leads to better consumer confidence and in-turn a stronger economy. Barclays economic Pooja Sriram says the November employment data could be particularly strong as GM workers left off the report in October will be counted.
We estimated 36,000 to 40,000 were left out of the report in October. We think they’re to be counted as part of the November report. Much of that is going to be seen in private payrolls and especially in manufacturing payrolls.
ISM non-manufacturing PMI will be the other piece of economic data on the docket this Wednesday. Analysts are expecting the figure to fall to 54.4 in November from 54.7 in October. While that represents slower growth from the previous month, a reading above 50% means the sector is expanding.
The service sector makes up more than half of the US’ economic activity, so an upside surprise on this figure would likely be a boon for the Dow. The manufacturing sector has seen a decline in recent months, so positive services data is paramount for investor confidence. If the figure comes in lower than expected, it could spark concern about the wider economy.
As President Trump continues his meet-and-greet in London, the markets are expecting to hear more on his tariff plans. Earlier this week, his comments that a China deal may not come until 2020 disappointed markets and sent the Down and S&P 500 lower.
But a Bloomberg report claims sources close to the trade deal say it is moving forward. His comments, they said, don’t reflect the progress being made between Beijing and Washington and that the two sides are inching closer to a resolution. The news sparked optimism among traders and rocketed the Dow higher in premarket trading. If Trump can keep today’s comments positive, the gains could stick around for the remainder of the week.
The President is due to meet with German Chancellor Angela Merkel on Wednesday as well. The two have a historically contentious relationship, especially when it comes to Trump’s calls for Germany to up its NATO contributions. Last year, Trump accused Merkel of being under Russia’s thumb. With that on the agenda, there’s a chance the President may sour the mood on Wall Street with more threats on European exports.
Dow futures exploded higher Wednesday morning as investors geared up for what could be a positive day for markets. If economic data is able to meet expectations and the President keeps his mouth shut, the Dow may be able to hold on to the momentum through the end of the week.
That may be too much to ask, though. It’s unlikely that a tweet or two from the President won’t hit the airwaves. If Trump is able to emerge from his meetings with Merkel on a positive note, there could be a turnaround in store for the Stock Market. But if the President’s hard-line on trade continues to dominate the conversation, there could be pain ahead for the Dow.
Last modified: January 30, 2020 9:13 PM UTC