Equities: Momentum Continues Equities: Momentum Continues Equities: Momentum Continues

Equities: Momentum Continues

Equities 8 minutes to read

Summary:  We ended the year with a bullish bias on equities (not the real economy) based on the recession of risks on the geopolitical front and huge amounts of liquidity being thrown at the market by central banks. Equities have continued to march higher and overnight the S&P 500 closed at another record high.

But what to expect after a year of 30% returns - expensive markets and stretched valuations! Momentum is strong and presents further upside for risk assets throughout Q1 2020.

Further into the year, the key test will then be whether reality is in line with market expectations. Will green shoots actually translate into a return to trend growth, and will the narrative of receding geopolitical risks be maintained. We are sceptical on both fronts.

The prior year’s gains have been driven almost exclusively by multiple expansion, and a recovery in earnings is already priced. This leaves the market frothy and somewhat vulnerable to shocks and there are plenty of catalysts for potential drawdown, geopolitical, economic, policy or otherwise. But for long term investors, these headwinds should not deter. With liquidity being pumped and low yields forcing risk seeking behaviour, dip buyers are there on the sidelines ready to step in as valuations correct which lends an underlying support to global markets. Monetary policymakers have already exhibited their willingness to intervene with added stimulus measures in an attempt to extend the cycle, so, for as long as investors feel like central banks have their back and policy rates remain low there will be upside for equities.

Monetary policy remains a powerful determinant of asset prices, and as we progress through the year, continued central bank liquidity injections will lend underlying support to equity markets. Record low interest rates also tempt investors up the risk spectrum and feed into valuation models, justifying higher multiples, and fuelling asset price inflation. A dynamic set to continue throughout the year ahead. Obviously the inability of such policies to produce a self-sustaining revival in growth, without stoking record wealth inequality, social unrest, and global political risk is a problem for another day.

In other news, this week the long awaited Phase 1 trade deal is set to be signed, although no one has seen the text yet! A lot of the positivity has already been priced and so we question how much further markets can rally on trade optimism, its seemingly endless. At any rate attention has shifted to primary drivers being earnings and central banks accommodation anyway. The risks really lie on the downside if the deal is perhaps more watered down than expected, or there is room for China to backtrack on promises easily. Something they have a long history in doing. Considering how difficult it was to get to this phase one deal, nobody should expect a phase two deal any time soon – if ever. Even Trump himself acknowledges phase 2 is unlikely to come before elections. Which means tariffs are likely to remain at current levels, bar the small rollback included in this phase 1 deal.

Will talks breakdown again? The election will be won on a strong economy and Trump sees the stock market as a real time indicator of that, but being tough on China also appeals to not only Trumps base but a bipartisan audience so it’s going to be a balancing act. The risk of tariff hikes in election year is reduced, but China have a reputation of failing to deliver on prior promises which is why enforcement was such a big issue during these negotiations. If China do not comply with the agreement set to be signed Wednesday, Trump has free reign to impose additional tariffs. There are some ambitious purchase commitments included in the deal, so there is plenty of scope for failing to meet them.

The deal by no means, means the stand-off is over. A lot of the more deep rooted issues have been left for phase 2 negotiations and whatever deal is signed between the 2 sides there is an ongoing bifurcation as it relates to technology well under way. Many Chinese companies remain blacklisted by the US Commerce department, and these efforts will be ongoing regardless of the present truce. Meanwhile Beijing are removing foreign computer equipment and software from government offices and public institutions and continue to increase self-reliance. On the technology battleground, you can’t get more specific sign of disengagement than this.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.