Did anyone notice so many investors were commenting that the U.S. equity market rally Thursday in reaction to news that Trump and Xi Jinping will meet was excessive and presumptive? Meanwhile, someone was buying. Stocks were moving up.
The S&P 500 is up 2% in the past two days. This came after it was announced that President Trump and Chinese leader Xi Jinping will meet in October to try to move closer to a trade resolution, amidst recently increased tariffs on both sides and threats of more of the same come December. Stocks rose as optimism a deal can be reached rose a bit. But there's been no solid agreement and the trend on the trade front, since August 1, has been one of retaliation and escalation.
"You're seeing risk on based on keyword reading algorithms that lead momentum bots [robots]," Sarge Guilfoyle, RealMoney contributor. "We will almost always overshoot on news events one way or the other and Thursday's big news event was China and the US agreeing to meet sometime in mid October."
Guilfoyle still thinks the rally has been "somewhat justified," but "because algorithmic trading has replaced humans at the point of sale, it's no longer an amalgamation of bets on the future. It's more the market of what's happening now, and what they do is they read the headlines, they run other bots, try to game them."
Meanwhile, the average S&P 500 forward one-year price to earnings multiple is now close to 18, with the index up almost 19% year-to-date. The 10 year treasury yield is at 1.5%. With the equity risk premium shrinking and recession risk rising, retail investors may want to hedge their bets.