Investing.com | Apr 22, 2019 05:45AM ET
We're a third of the way into 2019 and global as well as domestic stock markets look solid. Most major indices are set to reach new highs—possibly within the next week or two.
But the rebound that began after Christmas has lost some steam. More importantly, however, the fuel that could propel markets well beyond last year's peaks hasn't yet emerged. In addition, political tensions could pull markets lower.
Just about every market enjoyed a big January run-up, in part because investors saw bargains after the ugly slump in the fourth quarter of 2018, the worst quarter for U.S. stocks since 2011. The gains have continued since, but they've been far less dramatic.
In December, the Dow rose or fell 1% on 12 different days; the S&P 500 and the NASDAQ Composite performed similarly on 10 separate days. So far during April, there have been just two such days for the Dow and one each for the S&P 500 and NASDAQ.
Markets in Europe have behaved similarly and are also mostly higher.
Germany's DAX is up about 16%. Despite ongoing Brexit turmoil, Britain's FTSE 100 is up 11%. Japan's Nikkei is up 10.4%. India's Sensex is up 8.5% while Brazil's Bovespa, which is heavily tied to the fortunes of oil giant Petrobras (NYSE:PBR), is up 7.6%.
The one exception to the pattern is China's Shanghai Composite, up 30% this year on continuing reports that the United States and China will finally negotiate a deal to end their ongoing, ugly trade dispute. The Shanghai's gains represent a far better performance than the 25% decline the index saw in 2018.
U.S. Market Sound and Fury, But No Real Gains Since 2017
Any new, big leg up requires a catalyst at least as powerful as the fuel that propelled U.S. stocks 40% higher after President Trump's 2016 election victory: the huge Republican-driven tax cut of 2017.
Unfortunately, that fuel seems spent. In fact, the U.S. stock market has produced much sound and fury since the end of 2017 but for all the noise, hasn't really moved much. The Dow is down 0.7% from its January 2018 peak and off 1.5% from its Oct. 3 peak. The S&P is up 1.1% from the January 2018 peak and off 1.2% from its 52-week high on Sept. 21. The NASDAQ is up 5.4% from a peak in March 2018 and off 1.7% from its 52-week high on Aug. 30.
Yet even if the indices move above last fall's highs, technical factors will generate strong selling pressure.
So, is there a catalyst that could equal the impact of the 2017 tax cut? Maybe.
Nevertheless, four potentially big headwinds could provide a catalyst of a different sort, and should be watched.
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