If part of your stock market strategy is actively trading, monitoring major trading events can be particularly important due to their potential short-term impact on stock, bond, oil, and other investment prices.
Here are some of the key upcoming events that could impact your trades.
First quarter US earnings season is underway, as big US banks and several large tech companies were among reporting companies in the spotlight this past week. You can view who is up to report earnings on Fidelity.com.
Earnings reports are always among the most significant events for traders and investors, particularly if you hold the stock of a reporting company (or if you have short positions or options exposure to the reporting company). If you are in a short-term position, trading around earnings can make or break your strategy because of the potential for a stock to move by a large amount in response. And over the short and long term, stock prices track changes in earnings (see S&P 500 change in forward 12-month EPS vs change in price).
According to FactSet, US companies in the S&P 500 are expected to experience a 1st quarter blended earnings decrease of 4.3%—which would be the first year-over-year decline since the 2nd quarter of 2016. Of the 11 sectors, 5 have lower growth rates as a result of downward revisions to their earnings per share estimates and negative earnings surprises. The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 16.7; that means stocks are slightly expensive relative to the 5-year average of 16.4 and the 10-year average of 14.7.
Trade, economic reports
US-China trade talks continue to loom as potential market moving news. Fidelity's latest quarterly market update notes that, while investors remain hopeful for a US-China trade deal that could deliver near-term relief from tariff escalation, "a budding geopolitical rivalry may make a variety of other bilateral commercial issues less tractable, particularly strategic competition in the technology sector." This rivalry could represent a risk for both short-term trades as well as long-term investments.
While there will likely be a resolution to the US-China trade dispute at some point, there is always new economic data to consider. You can track key economic reports on Fidelity.com (note that, if you click on "Full Economic Calendar" the most important economic releases are labeled with a red star).
For the week beginning April 22, several key monthly US housing reports will be released (new home sales, existing home sales). These can have an impact on home builders and home goods companies, among other industries. Additionally, Q1 GDP and durable goods orders will provide a high level view of the US economy. Both of these reports could dictate market direction upon their release, depending on how the numbers come in compared with expectations.
Much was made about the recent yield curve inversion—when the 10-year US Treasury yield dipped below the 3-year US Treasury yield. This is a recession indicator, according to some market watchers. Stocks have been resilient since then, however, perhaps due to the cost of capital not increasing as well. Some investors believe that the yield curve should continue to be monitored because a sustained inversion—rather than a short-lived inversion—would warrant fears of an impending recession.
Another signal that traders have received is the "golden cross" moving average indicator—when a short moving average crosses above a long moving average. Stocks have rallied since early April when the S&P 500's 50-day moving average crossed above the 200-day moving average. Previously, the S&P 500 experienced a "death cross" (when a short moving average crosses below a long moving average) in December 2018, and stocks tumbled into year end. It's unusual for this indicator to register signals as frequently as it has over the past several months, and could be a trend worth monitoring.
If you are actively trading the market with a percentage of your portfolio, many events that are potential market movers can be anticipated and planned for—to some extent.
Of course, it's not possible to be prepared for all possible trading events. Bad weather, for example, can bring unexpected risks in a wide-range of businesses—including the producers and consumers of commodities like oil and agriculture, as well as airlines and transportation companies—among others. Geopolitical developments, such as the uncertain situation surrounding Brexit, can introduce the possibility of unknown outcomes and investing implications.
Part of your trading strategy should be to have a plan for how to adjust your position if events do not go as expected. Despite the uptrend in many global stock markets suggesting calm waters, stay vigilant.
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