Could US Earnings Save the Stock Market?

US companies continue to outperform and more than 75% percent of the companies that had released earnings numbers so far posted impressive results. The US shares had been boosted by the news and for the short run, it seems like the market participants are willing to ignore the tensions between the United States and China.

Major US indices continue to impress

The Nasdaq continues to make new record high, as shares of companies like Amazon, Google, Facebook and Netflix continue to advance. The S&P500 had reached levels not seen since the beginning of 2018 and the Dow Jones Industrial Average had banked three consecutive weeks of gains.

It’s “risk-on” for investors and this market mood is expected to continue until the earnings season will be over.

The risk lies on the horizon

However, the market sentiment could change until the end of the third quarter. July 6th had been “the first day of the war with China”, as Ray Dalio – founder of Bridgewater Associates, wrote on his social media accounts.

That day, the United States applied taxes on $34 billion worth of Chinese goods, and China responded soon after with a similar move. Tensions seem to escalate further since the US came out recently with a new list of goods worth around $200 billion, which could be taxed at 10%. The measure was not implemented thus far since it will undergo a two months revision period.

The end of August might be an uncertain period, with major global shares under pressure.

Fundamentals continue to support

Despite these rising tensions, the US economy continues to perform above expectations. Inflation is little above the 2% threshold, the economic growth is above 2%, corporate earnings are soaring boosted by the fiscal measures implemented at the end of 2017, and the job market is expanding with unemployment at lows not seen since more than 15 years ago.

The US dollar had also been performing well against its major rivals, which we cannot say about the Chinese yuan. The currency had been under pressure since the tensions with the US started to escalate and some analysts anticipate that the PBOC could take actions in the near future if the situation won’t find an end.

Judging by the high stakes, negotiations between the major economies could last for extended periods of time, making shares across the globe vulnerable to any negative news.

Risk warning and disclaimer

Stock trading carries risk and might not be suitable for everyone. You should carefully consider before deciding to invest in stocks. No information contained in this article should be regarded as an investment decision.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.