Most on Wall Street agree that President Donald Trump offered not much in the way of new information in his Tuesday speech at the Economic Club of New York. Yet stocks had a decent day after having already enjoyed a rally of late.
Trump, speaking at the club in Midtown Manhattan, touched on his well-documented dislike of Federal Reserve interest policy as well as trade policy. He offered not much new hard information or perspective.
He did say that China is "dying to make a deal. We're close. A significant 'phase one' trade deal with China could happen soon." Of course, that's a movie the market has seen reverse plot many times.
Trump "mentioned that the `China deal could happen soon,' but he's said exactly the same thing in the past, so that wasn't anything new," wrote Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note.
Meanwhile, all three major U.S. stock indexes spent most of Tuesday in the green, before the DJIA finished unchanged and the S&P 500 and Nasdaq crept higher. The S&P 500 is up 6.85% since Oct. 8.
Many on Wall Street say investors are pricing in optimism that a trade deal will get done, although developments out of both China and the White House continue to leave an unclear picture on the trade front.
GDP growth in the U.S. has recently trended above expectations (1.9% for Q3), indicating the country is farther away from recession than previously thought. A trade deal would improve the picture as well.
Still, the data are decelerating and recession risk on a rolling 12 to 24 months basis is higher than it was a few years ago. "It's a skittish market," Jim Carney, founder and CEO of Parplus Partners, told TheStreet. "Investors are nervous about recession prospects and global uncertainty."
So what else continues to push stocks higher?
First off, it's hard for money to flow into many assets besides stocks. Cash holdings aren't exactly low and even though U.S. interest rates have ticked up a notch of late (the 10-year yields 1.92%), rates globally are still at unprecedentedly low levels. Negative yielding debt outstanding has ballooned to over $13 trillion globally.
But it's the high levels of cash holdings that are also adding to the market's gentle drift upward. Investors are "extremely conservative by keeping a great deal of money on the sidelines," Carney said. "Because investors are being risk-averse by holding so much cash, it would be difficult for the market to have a steep, sustained drop."
A UBS Global Wealth Management report released Tuesday says wealthy investors on average are currently holding about 25% of their investment portfolios in cash, "far higher than UBS's recommendations," the bank said, and far higher than the standard portfolio allocation.
The recent rally is a "disbelief rally," Carney said.