'Santa rally' hopes shatter on S&P 500 selloff
Bulls' hopes for a year-end rally in the S&P 500 were already on shaky ground following continued trade war noise surrounding the Huawei CFO arrest, but Friday's sell-off has likely put them to rest.
Head of Equity Strategy
Summary: The Fed has stepped in with what the market considers policy support while the key risk event remains the upcoming G20 summit in Buenos Aires this weekend.
The below statements are the official wordings by the Fed chair over the two events.
October 3: “We may go past neutral. But we’re a long way from neutral at this point, probably”
November 28: “Funds rate is just below the broad range of estimates of the level that would be neutral for the economy”
A lower interest rate trajectory is short-term positive for equities and based on yesterday’s speech we are revising up equity returns post- the G20 by two percentage points across all three scenarios. The Fed’s new stance will also likely strengthen the US' negotiation hand in case the G20 leads to nothing.
Three rate hikes discounted in financial markets on top of the tariffs hike to 25% from 10% on the latest $200bn would have been toxic to equities. It would have given the Chinese a good hand against Trump in Q1 as their stimulus is working through the economy with likely effect in Q1. We are not changing the probabilities for the G20 outcome and still believe a no deal is the most likely scenario.