Conventional wisdom says there are seldom any winners in trade wars. History has shown that high tariffs and trade wars are long, costly and often difficult to end with stock markets coming under pressure. If this is true, why have U.S. stock index futures held up so well during the current round of global trade problems? In fact, S&P 500, NASDAQ and Russell 2000 futures recently advanced to new historical highs.
Something is clearly different this time, as U.S. stock index futures continue to pay less attention to the trade war threats. Could it be that U.S. stock index futures are looking past the negatives of trade war uncertainties and instead are focusing on something else? But what? My contention is “that what” is the bullish influence of the still relatively low global interest rate environment.
In spite of the seven fed funds rate hikes from the Federal Open Market Committee since December 2015, the fed funds rate is still low by historical standards.
In addition, some overseas interest rates remain near or at historical lows and in many countries interest rates are still negative. There is still plenty of accommodation left in the domestic and international banking systems.
While history has shown that there has been a strong direct correlation between rising global trade tensions and falling stock markets, the current trade tensions appear to be having less and less negative impact on stock index futures. The bullish influence of the still historically low global interest rate influence is dominating, taking stock index futures higher.
Please contact me for any assistance you may need. Good trading and thank you!
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. Past results are not indicative of future results or performance. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
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The risk of loss in trading futures and options on futures can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them. Past performance is not necessarily indicative of future results.