U.S Stock Market Getting Interesting Again
Since peaking last October, the U.S. stock market, as measured by the S&P 500 Index, fell by more than 20% by the end of 2018 – a fall of a little more than 20%, which meets the traditional criteria of a bear market. Other measures of a bear market, such as the 50 day / 200 day moving average “death cross”, or the price being below the 200-day moving average, were also reached as a matter of course.
Funnily enough, ever since that 20% fall was reached at the end of December, the market has been recovering steadily. The logic of labeling a 20% fall from a price peak a bear market has a flip side: a 20% rise from a low is a bull market, and by that criteria, we will be in a bull market again once the S&P 500 Index reaches 2815.90. We are not quite there yet, but this level is coming into view and is not very far off.
There are two immediate events which might derail this recovery into a bull market: firstly, and most seriously, the 1st March deadline for the U.S. to either agree a comprehensive trade deal with China or impose full tariffs. Secondly, the U.S. government is scheduled to shut down again on 15th February if no financing deal can be agreed between President Trump and the Democrat-controlled Congress. China is by far the bigger threat to the stock market’s recovery.
Most Forex/CFD brokerages offer trading in major stock market indices such as the S&P 500 and the Dow Jones Industrial Average as well as Forex currency pairs. These historically tend to make more reliable movements than Forex currency pairs, at least in the long direction, so can be good to trade when they are rising. The problem is that when LIBOR is relatively high (as it is now), the overnight financing charge on long positions can equal something like 5% on an annualized basis. Furthermore, the spreads charged by retail Forex/CFD brokerages are typically relatively high compared to Forex currency pairs. If you want to trade stock market indices you should carefully examine these costs and weigh them against how much you expect to make in profit overall, to determine whether it is worthwhile.