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JPMorgan: It’s Too Soon to Trust Stock Market Rally amid Bearish Trend

Last Updated September 23, 2020 12:47 PM
Joseph Young
Last Updated September 23, 2020 12:47 PM

By CCN.com: With reports indicating that the new trade deal with Mexico secured by the U.S. has some specifications that are not fully agreed upon by both countries, the prospect of the U.S. stock market has slightly declined in the past several days.

The Dow Jones is down 0.23 percent on the day, falling below 26,000 points, showing lack of momentum in the stock market
The Dow Jones is down 0.23 percent on the day, falling below 26,000 points. | Source: Yahoo Finance

The Dow Jones has slipped by 0.19% on the day, falling below the 26,000-mark following strong recovery from 25,522 to 26,197 at the week’s peak.

However, according to Jason Hunter, the Head of Global Fixed Income and U.S. Equity Technical Strategy at JPMorgan, the current rally of the U.S. stock market may not be strong enough to be sustained throughout the short term.

Bearish Indicators Surrounding the Stock Market

On the technical side, Hunter emphasized that the breakdown of the S&P 500 during a phase in which trend indicators including moving averages were signaling large movements initially indicated a bearish trend in the market.

He said:

“It’s a little bit of good news and bad news situation when we look at the charts [of the S&P 500]. So the market traded in this broad pattern that it broke down from in late May, which has pretty bearish implications, particularly if you look at the way the trend following signals were set at the time and the number of moving averages; the market broke down through those at a time wherein the news story wasn’t looking that good, which could have generated a lot of downside momentum.”

In the past week, the stock market has demonstrated a solid rebound as a result of the speculation around the possibility of the Federal Reserve potentially decreasing the benchmark interest rate by July.

While bullish momentum could build on top of the recent recovery of the stock market, Hunter emphasized that the market is currently driven by headlines and that geopolitical uncertainties make it less compelling for investors to chase for the rally. Hunter added:

“This has been a very headline-driven market over the past several months. We have G20 coming up, the trade stories, and so with the market near 2,900 and a number of cyclically sensitive groups not really performing all that well just yet, things like copper and semiconductors, we’re less inclined to chase the market up here and we want to see the market trade well for a few weeks before we look at that.”

Local analysts predict trade war worsening

There were hopes that the agreement of a new deal between Mexico and the U.S. would raise the prospect of the resumption of trade talks with China.

But, local analysts are anticipating the trade war to continue as long as the requests made by the U.S. that include changes to the industrial policies of China remain in place.

Hu Xijin, the editor-in-chief of Chinese and English editions of the Global Times, said :

“As far as I know, China’s state media will publish more heavyweight commentaries criticizing the US and demonstrating China’s determination. It’s rare to see scathing attacks against the U.S. in state media. This shows Beijing is preparing for China-U.S. ties getting further worsening.”

If the conflict between China and the U.S. persists throughout Q3 2019, strategists fear that it would hurt the productivity levels in both the U.S. and the global economy, which have been on the rise since 2018.

With fundamental factors like the U.S.-China trade war and the Federal Reserve’s potential interest rate cut still considered uncertainties and technical indicators indicating a bearish trend, analysts expect investors to approach the stock market with caution in the near term.