By Anora M. Gaudiano, MarketWatch , Ryan Vlastelica
Nasdaq on pace for double-digit gains for first half of 2018
The threat of a full-blown U.S.-China trade war is having less
impact on both investor sentiment and stock prices than might be
expected, judging by double-digit gains for the Nasdaq and modest
but positive returns for the S&P 500 so far this year.
To a large degree, the prospect of a wider trade conflict hasn't
been enough to untrack the market leaders that lifted Wall Street
throughout the first half of 2018 -- albeit with higher
volatility.
Large-capitalization technology and internet stocks continue to
hit new records. Meanwhile small-cap stocks, a group that is
reliant on the domestic economy and is somewhat insulated from
trade woes, rallied to all-time highs in the past week.
Read:Here's the only worry about the big rally by small-cap
stocks
(http://www.marketwatch.com/story/everything-looks-great-for-small-cap-stocks-with-just-one-caveat-says-chart-watcher-2018-06-21)
The Nasdaq Composite , despite a modest weekly decline is
trading near record levels set the previous week and is up about
12% since the start of the year, after a nearly 30% gain in 2017.
The small-cap Russell 2000 index is up about 10% since the start of
the year, adding to a 14% gain last year.
Meanwhile, the large-cap S&P 500 -- the U.S. stock benchmark
-- is up 3% over the past six months, leaving it 4% below the
record set in late January.
The market's inability to gain what some analysts have termed
"escape velocity" is largely due to trade-related headlines. In
addition to the battle with China, President Donald Trump on Friday
tweeted that he's considering 20% tariffs on imports of European
autos
(http://www.marketwatch.com/story/trump-today-president-threatens-tariffs-on-european-cars-tells-republicans-to-stop-wasting-their-time-on-immigration-2018-06-22).
Check out:Trade-war tracker: Here are the new levies, imposed
and threatened
(http://www.marketwatch.com/story/trade-war-tracker-here-are-the-new-levies-imposed-and-threatened-2018-06-22)
Stock-market bulls said it isn't surprising to see the broader
market lagging after a short-term shock.
"Just like a heart attack patient doesn't get right up off the
gurney and run the 100-yard dash, the stock market is likely going
to have to convalesce for a few sessions without much further
downside," said Jeffrey Saut, chief investment strategist at
Raymond James in a Friday note.
The Dow on Friday snapped an eight-day losing streak, its
longest since March 2017, but ended the week with a 2% decline,
while the S&P 500 saw a 0.9% weekly decline and the Nasdaq fell
0.7%. Despite the weekly drop, the trade issue hasn't soured
investors on stocks.
According to the American Association of Individual Investors
sentiment survey, 38.7% of those polled describe themselves as
bullish on the market, meaning they expect prices to be higher in
six months.
This is down 6.1 percentage points from the previous week, but
it remains roughly even with the historical average, of 38.5%. And
while the ratio of bearish investors rose 4.5 percentage points,
only 26.2% of investors describe themselves that way, below the
historic average of 30.5%.
There are good reasons for equity investors to be upbeat --
earnings are up by double-digits and the underlying economy is
expanding at a healthy clip thanks to a tailwind from the tax cuts
signed into law late last year. Such an environment should support
prices for the rest of the year, according to Emily Roland, head of
capital markets research at John Hancock Investments.
Trade tensions, however, continue to dominate headlines. And the
threat of a wider trade war hasn't escaped the attention of central
bankers, several of whom, including the Federal Reserve Chairman
Jerome Powell and the European Central Bank President Mario Draghi,
on Wednesday warned that a trade war could push the global economy
into a ditch
(http://www.marketwatch.com/story/powell-draghi-express-concern-over-trade-wars-2018-06-20).
See:Why a major trade war could mean a 'full-blown recession'
(http://www.marketwatch.com/story/why-a-major-trade-war-could-mean-a-full-blown-recession-2018-06-22)
While the concerns weighed on Wall Street, it hasn't yet proved
the bull-market killer that some fear.
Even the Dow's eight-day slump was very relatively mild--only
about 3% from peak to trough.
According to LPL Research senior market strategist Ryan Detrick,
the fact that the Dow remained above its 200-day moving average
amid a long slump is a good sign for the bulls as the index tends
to bounce back over the following three months 80% of the time in
these scenarios.
Next week's economic releases aren't likely to move the market,
though they are likely to reinforce the existing picture of the
healthy economy.
On Monday, consumer confidence and housing index data are due
for release. On Tuesday, investors will get durable goods orders
and data on trade and pending home sales. Personal income, as well
as Chicago PMI and consumer sentiment data are due on Friday.
Investors will also hear from a number of Fed officials, with
Atlanta Fed President Raphael Bostic and Dallas Fed President Rob
Kaplan speaking at separate events on Monday. On Wednesday, Randal
Quarles, Fed vice chairman for bank supervision, delivers a speech
on international bank regulation at an event in Sun Valley, Idaho,
while Boston Fed President Eric Rosengren speaks at an event in
Washington, D.C. On Thursday, St. Louis Fed President James Bullard
participates in a moderated conversation on the economy and
monetary policy.
(END) Dow Jones Newswires
June 23, 2018 17:16 ET (21:16 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.