The bull rally in the United States stock market might end if a trade deal is made with China according to Shawn Matthews.
If the United States and China reach a trade deal, the recent bull rally in the stock market might be put to an end. This is according to the head of the broker unit at Hondius Capital Management, Shawn Matthews. In his words:
“Currently, traders have a risk on mentality – they prefer being long on riskier assets until the US can seal a deal with China. As soon as an agreement is reached, traders will start trying to scale back.”
Matthews, who also owns a hedge fund, suggested that traders focus on investing in equities for now because bonds are too risky. According to him, the 13% price hike in stocks that started during Christmas is related to the United States to China war. So, there may be a case of ‘sell the fact and buy the rumor’. He continued:
“There isn’t any follow through in the bond market. If this was a truly risk-on market, an extended trade and people believed this, the 10-year trades would have started to back up. This shows that people are concerned about what is going on.”
The stock prices are being supported by the positivity among traders and the patience of the Federal Reserve. At the same time, the Treasury yields are under pressure because investors are worried about the possibility of a rise in interest rates. Matthews concluded:
“You cannot put risk-on and walk away. There are a lot of things to put into consideration. The market is highly volatile and there are many headlines influencing the investors.”
While an agreement hasn’t been reached between the United States and China yet, the talks are ongoing and an agreement could be reached soon.