Three Factors That May Impact The S&P in Q2.

At a Glance

  • One of the world’s most popular equity market benchmark may continue to reflect the dovish stance from the Fed and U.S-China trade tensions
  • A new S&P futures contract designed for smaller traders comes this Spring

The S&P 500 index is one of the leading benchmarks of the overall market, to which all other investments are compared. It captures 80 percent of the market cap of the stock market.

The breakdown of sectors includes the following:

  • Information Technology – 19.9 percent
  • Health Care – 15.8 percent
  • Financials – 13.7 percent
  • Consumer Discretionary – 9.9 percent
  • Communications Services – 9.9 percent
  • Industrials – 9.4 percent
  • Consumer Staples – 7.4 percent
  • Energy – 5.4 percent
  • Utilities – 3.1 percent
  • Real Estate – 2.9 percent
  • Materials – 2.6 percent

So, what is in store for the S&P 500 market in the coming months?  Three factors are likely to play the biggest roles in the next move:

The Fed

Just a few months ago rising rates were impacting everyone from home buyers to investors but in an astounding about face, the Fed has changed course.  Not only have they adopted their patient, dovish stance but just recently commented that they may not raise rates at all in 2019 due to economic risks.  The impact of their shift may soon filter out to consumers across the economy.

With rates not expected to rise further, credit card borrowing rates will stabilize, and flat mortgage rates will be welcome for buyers as the upcoming spring home buying season kicks into full swing.  Lower rates can make stocks more attractive as investments because of the opportunity cost of owning fixed income assets.  This in turn could be a major tail wind for the S & P 500 index in the coming months.

China

The U.S.-China trade talks have intensified and after sending signals that negotiations may take the entire second quarter, President Trump has once again intimated that the sides are getting close. We have seen this back and forth over during the negotiations and in my opinion the S & P 500 has factored in a favorable resolution for the U.S. in the coming months. Stocks and the S & P have moved higher in advance of a potential Chinese trade announcement and without a solid agreement, markets may be disappointed.

Brexit

Brexit uncertainty has dragged on for months and is due to now come to a potential resolution by April 12. If U.K. lawmakers fail to reach a compromise, then this will be the day of a no-deal Brexit. This would mean the U.K. would stop being a member of the EU overnight, without any deal or transition period — a scenario that would bring massive uncertainty for businesses, citizens and markets. Again, the overall market does not like uncertainty and any extension due to a breakdown in talks is likely to negatively affect the index.  However, a resolution or at least a path to resolution may have the opposite effect.

It is obvious that there are major market moving headlines that can affect the S&P 500 index in the next few months.  The index can be traded using E-mini S&P 500 futures at  CME Group. New Micro E-mini futures allow an investor a smaller, more affordable way to access one of the index as well. With several factors set to potentially send ripples through the market, traders will need to keep watch, and be aware of the tools at their disposal.

Scott Bauer graduated with honors from the University of Illinois Business School, Urbana Champaign, in 1988 with a B.S. in Finance. Bauer began floor trading in 1991 and formed BOTTA Capital Management in 1995. Scott traded equity options, S&P options at CME and was employed by Goldman, Sachs & Co. as Vice-President, Equities Division. He is currently CEO of Prosper Trading Academy and appears regularly on CNBC, Bloomberg Financial and Fox Business as a guest commentator.

Additional Recent Articles in Global Finance