(MarketWatch) Wall Street looks set to move higher on Monday on renewed optimism of a trade deal between the U.S. and China. New tariffs are due to hit on Dec. 15, but U.S. President Donald Trump said last week that a deal was “potentially very close.”
Chinese President Xi Jinping said Beijing was working to avoid a trade war but warned it would fight back if necessary.
Despite equities remaining vulnerable to an escalation in trade tensions, JP Morgan said 2020 could be another strong year for stocks.
In our call of the day, JP Morgan analysts said 2020 could be the year of the “great rotation” — retail investors abruptly shifting away from bond funds to buying equity funds, last seen in 2013.
Analysts said the “extremely cautious stance” of retail investors this year had been puzzling and acted as a drag for equity markets.
JP Morgan has previously argued the cautious behavior left equity markets vulnerable and at the mercy of institutional investors, and now predicts a shift leading to more gains in 2020.
Years of high bond flows, such as 2012 and 2017 — and now 2019 — have typically been followed by weak bond fund flows the following year, analysts said.
JP Morgan analyst Nikolaos Panigirtzoglou said: “Given this year proved to be a strong year for equity markets, helped by institutional investors, then we should see retail investors responding to this year’s equity market strength by turning [into] big buyers of equity funds in 2020. This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors,”
He accepted this call faced “a major challenge” from already elevated retail investor equity positions but said that it was justified by cash and bond yields being significantly less than before following central bank rate cuts.
