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Will U.S.-China Trade Deal Fuel This Stock Market Rally?

That’s the consensus, but stock-market news "flips" are common

by Bob Stokes
Updated: January 22, 2019

So, is a U.S.-China trade deal just what the doctor ordered for the stock market?

Well, on the last day of 2018, a network news organization said (CBS News, Dec. 31):

Stocks climb amid renewed hopes for U.S.-China trade deal

Since then, the DJIA has trended higher, with the index's price more than 1300 points higher as of Jan. 18.

But, are prospects for a U.S.-China trade deal the real reason?

Well, relying on news or events as factors in predicting what the stock market will do is a tricky thing.

For example, at 4:26 a.m. ET on Nov. 27, CNBC ran this headline:

Dow and S&P 500 rise on hopes for a US-China trade truce

On the very same day, at 1:43 p.m. ET, CNBC said:

Stocks fall as investors fear trade war

In other words, the U.S.-China trade situation made the stock market rise, then fall -- even though nothing had changed between the U.S. and China in the nine-hour stretch between those headlines.

Indeed, the August 2018 Elliott Wave Theorist explored the widely assumed connection between the market and news, and gave another fun example. Robert Prechter said:

On Friday, June 5, 2009, the stock market rose for a while and then slipped. I captured these headlines, issued less than an hour apart:

U.S. Stocks Surge as Jobs Report Spurs Optimism on Economy

June 5, 2009; 13:39 GMT (Bloomberg)

Markets Slide on Jobless News

June 5, 2009; 14:31 GMT (UPI)

Comical as such causality flips may be, they are common. The rarity in this case is that the flip was swift. Similar flips occur all the time from week to week, month to month, year to year and era to era. People don't recognize them for what they are because of the long duration between flips and the seeming sensibleness of each ad-hoc argument at the time it is made.

You see, the evidence has shown time and again that the news does not "cause" the stock market to trend higher or lower.

The actual driver of stock market prices is investor psychology, which is reflected in the Elliott waves that show up in stock market charts.

These waves are repetitive. Hence, they are also predictable.

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