Our partners have focused on the US equity market, documenting the massive and painful sell-off in November and December of 2018, then the rally in January 2019. Note that these two months, December and January were both records on the sell-off and rally, respectively. Clearly the drivers have changed, as the Fed hike cycle outlook has pivoted to an easy stance that has given the January rally a boost.
While we continue to see earnings, US and global economic growth slowdown, and of course the US-China trade talks which are approaching a major decision, though the deadline has been extended, our view at Classiarius is that the US equity market will rally, then see a substantial sell-off of 3 weeks or more. In short, people will realize that the US trade issue with China is structural and generational.
We see a short rally and then a deep sell-off starting between March 4 and March 7. With the downside target in the S&P 500 being 2,550 or lower in the coming months. Keep in mind that President Trump indefinitely dropped his threat to raise tariffs to 25 percent from the current 10 percent on $200 billion in Chinese manufactured goods. As a result, stocks surged on Monday, after this positive news.
But will the so-called Trump deal satisfy the Chinese forced transfer of technology and intellectual property rights.
US Trade Representative Robert Lighthizer testifies on trade before Congress on Wednesday, and he is expected to provide more details. Also, note that Fundstrat`s Tom Block said both Trump and Xi have political aims. Trump has the 2020 election and to stay in power, Xi must manage a slowing Chinese economy that will eventually force the Chinese leader to make some unpopular political decisions.