4 Events That Could Make or Break the Market in 2019

Glimmer of Hope Appears for Possible Agreement Between China and U.S.

Markets took tentative steps into bullish territory early this week with the news that talks were continuing between China and the U.S. on a possible deal to end the trade war. That sentiment seems to have been buoyed by comments from Larry Kudlow, President Trump’s National Economic Council Director, who noted on Tuesday that the White House is having “a lot of communication with the Chinese government at all levels” ahead of December’s G-20 summit.

“We were at a total standstill before,” Kudlow continued. “Nothing was going on.”

But relations seem to have thawed in recent weeks, ahead of the meeting between President Trump and his counterpart, Xi Jinping, which takes place in a matter of days.  The markets, at least, are feeling cautiously optimistic, as evidenced by the Dow’s 4.11% gain since Monday.

The S&P responded favorably to the news as well along with the Nasdaq Composite, despite lingering fears over FAANG stocks, rising 3.31% and 3.77% respectively.

Markets Stay Choppy as “Whole Year Comes Down to the Next Few Weeks.”

Traders are preparing for a volatile December, with high-profile meetings and major policy changes set to determine the outcomes of both 2018 and 2019.

December’s schedule includes a meeting between Trump and Xi at the G-20 summit hosted in Argentina, Fed Chairman Jerome Powell’s long-awaited speech on December’s interest rate hikes (which now seem unlikely), the looming Brexit vote in the UK parliament, and the final tweaks to Italy’s budget talks with the EU.

Positive outcomes for these events could send stocks soaring (like they did yesterday). But if the outcomes go against the bulls, it could mean the markets will limp their way into 2019 and may even trigger a years-long bear market.

“The whole year comes down to the next few weeks,” said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management. “Most of what’s happening is geopolitics-related. If we can get clarity on any of those things (tariffs, Brexit, the Italian budget), especially tariffs, that would be positive for the market.”

With Rate Hikes Still Looming, a Rally May Be Short Lived

The likelihood of an end-of-year rally which could extend into early 2019 is very possible if Trump and Xi reach an agreement on trade now. But even if bulls get their holiday wish list of goodies—which includes a drama free Brexit and a deal between the EU and Italy—the U.S. Federal Reserve could play the role of the Grinch who stole Christmas.

Fed Chairman Powell’s speech is just two short weeks away, and even though he seems more timid now about raising rates, he will likely continue with his original plans in early 2019.  

If Powell takes a decidedly dovish tone for next year and a trade deal is reached with China, that puts a new all-time-high chance back on the table for next year, at least for the Dow and the S&P.

But if he leaves the same rate schedule on the table – despite his recent leanings – the stock rally made by a Trump-Xi deal may fizzle out fast, leaving the bears in full control of this market in 2019 and possibly even beyond that.