The Dow Jones Industrial Average fell over 200 points in Friday morning’s market session as slowing global growth fears continue to linger.
With the U.S.-China trade truce nearing its 90-day deadline, a meeting between U.S. President Donald Trump and Chinese President Xi Jinping appears “highly unlikely,” per a report by CNBC. While President Trump is painting an optimistic picture that a deal will get done, White House economic advisor Larry Kudlow said the two largest economies were still far away on reaching a permanent trade agreement.
“The fear factor over the trade war has crept back into the market,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “That’s going to send the market for a bumpy ride.”
“We’re probably looking at a more defensive situation until we have more clarity on the trade negotiations,” Cardillo added.
European Slowdown
This week, the European Commission pared down its 2019 growth outlook for the euro zone, saying global trade tensions and other issues will drag on its largest economies. The Commission said growth will slow to 1.3 percent compared to 1.9 percent for 2018, but is forecasting a subsequent rebound in 2020 to 1.6 percent.
Meanwhile, the Bank of England also cut down its outlook, citing slower growth for 2019–its slowest pace in a decade.
U.S. equities have been buoyed by better-than-expected earnings reports, but some analysts feel that the upside thus far in 2019 could be only temporary. Investors could expect sideways, rangebound market movement for the rest of 2019.
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Companies who have reported fourth quarter earnings thus far are showing a profit increase of 14.1 percent on a year-over-year basis, according to data from Factset. However, some companies have also tempered their profitability guidance for future quarters.
In fact, FactSet data is forecasting that that earnings for the first quarter of 2019 will decline by about 1 percent–a profit contraction not seen in the S&P 500 since the second quarter of 2016.
“Whether the pain trade of a grinding advance in equities will persist or falter, much depends on upcoming economic and earnings data, whether protectionist tensions improve/worsen and if the bond market stays calm,” wrote strategists at MRB Partners in a note. “The technical outlook for equities looks positive, although many indexes are now approaching resistance levels. There seems to be a moderate number of investors waiting for a correction in order to add positions, which contrarily usually means that the dips will be brief.”
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