11:58 a.m. As we watch the Dow Jones Industrial Average’s listless trading today, it give us a chance to think about what might drive stocks higher or lower. And it all comes back to the same issue: Trade.
Stocks are taking a bit of a breather today. The S&P 500 has dipped 0.1% to 2811.94, while the Dow Jones Industrial Average has advanced 63.70 points, or 0.2%, to 26,244.00. The Nasdaq Composite has declined 0.3% to 7,549.06.
Yes, the midterm elections helped the Dow gain more than 500 points on Wednesday, but that’s yesterday’s news and likely won’t have an impact on where the major indexes go next. And yes, the U.S. Federal Reserve is issuing its November monetary policy statement later today, but that shouldn’t bring many surprises—it would take something major to keep the Fed from raising interest rates in December. Even corporate earnings, despite worries about 2019, still look like they’ll keep growing into 2019.
That leaves trade as a binary issue that could determine whether stocks rally back to new all-time his, or tumble below their January lows. In fact, Mayank Seksaria, chief macro strategist Macro Risk Advisors, believes that’s the biggest risk facing the market right now. “We believe U.S. / China trade related risks are much more critical than U.S. midterm election outcome and the Fed,” he writes. “G20 is the best opportunity for some sort of deal to be struck between Xi & Trump, but no deal by Dec 1 is likely to be the critical negative catalyst for markets between now and year-end as tariffs are scheduled to go to 25% on Jan 1 if nothing changes.”
Of course, if a deal does get made, it should be off to the races, leaving investors with shorter-term horizons in a complicated position. Bet on a deal or no deal? Seksaria says there’s an options trade for that. He recommends owning a “put spread” on the SPDR S&P 500 ETF (SPY) by buying a put option that gives the owner the right to sell the ETF at $270, and selling a put option that requires the seller to buy the ETF if it trades below $263.
“This type of a binary setup is similar to other events in the last few years where there is a date in the future that represents a major fork in the road,” Seksaria explains.
As Yogi Berra said: When you get to a fork in the road, take it.
Write to Ben Levisohn at [email protected]