US stocks, oil likely to recover after rocky December

 In Newsletter

Issue No. 109

Countries covered: United States, Germany

Assets covered: S&P 500 Futures, Brent Crude Oil Futures, Germany DAX 30 Stock Market Index, MSCI Emerging Markets Index Futures

 

Recent economic data has been mixed, with some signs of a turnaround in Germany even as the US manufacturing sector slumped further in November. And while record sales over the big holiday shopping weekend was encouraging for consumer spending, President Trump’s recent rekindling of tariffs and threats of tariffs haven’t helped sentiment.

 

Equities have sold off on negative trade war news, but we thought the record highs in US stock markets last month were out of whack with fundamentals, as our models had been calling for a pullback for several weeks.

 

Our December forecasts, published yesterday, indicate we may get that pullback in December (stock prices fell for a third day on Tuesday), but then will likely bounce back in Q1. Our baseline forecast is for a nearly 4% decline in the S&P 500 Index this month, but for markets to make a full recovery in Q1.

United States S&P 500 Stock Market Index (SPX) Forecast through February 2020

United States S&P 500 Stock Market Index (SPX) Forecast through February 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

In a sign we may be seeing a pickup in economic activity, our models show that Brent crude prices will likely bottom out in December and then rise in Q1. OPEC+ meetings this week in Vienna to decide on production cuts are bound to have a significant impact in short-term price movements, but market fundamentals say prices could soon be seeing some upside.

ICE Brent Crude Oil Futures (B10) forecast through February 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

The picture for Germany, Europe’s most important economy, is less clear. Despite the recent improvement in the data, our models indicate the country’s equity markets have likely hit a near-term peak.

Germany DAX 30 Stock Market Index (DAX) forecast through February 2020

Germany DAX 30 Stock Market Index (DAX) forecast through February 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

The final chart shows the outlook for emerging market equities. These cyclical markets should do well on the whole amid a recovery in economic activity early next year.

MSCI Emerging Markets Index Futures (FMEM1) forecast through February 2020

MSCI Emerging Markets Index Futures (FMEM1) forecast through February 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

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