In December 2018 the stock indexes fell sharply following a G20 meeting where President Trump among other things called out many countries for unfair trade, particularly China. Furthermore, the Fed raised rates for the fourth time of the year, which happened to be the last in a series of nine rate hikes since December 2015. After months of climbing higher, stocks fell hard in May following an FOMC meeting. Another rapid decline began in August following what would be the first of three interest rate cuts in 2019. Stocks have done well since. The point is, trade and the Fed dominated headlines that moved markets last year.

Phase 1 of the trade agreement with China is supposed to be signed very soon. And it appears USMCA will be passed shortly as well. Therefore, trade is not likely to be a big obstacle this year. The Fed plans to keep rates as they are, thus the FOMC meetings may have less impact as well. So, what will move markets in early 2020?

We got our answer this week. The tensions with Iran are not likely to go away soon. The sharp moves both up and down in many markets were related to conflict. Conflict kills stocks, at least initially. And when stocks fall sharply, treasuries, gold and Japanese yen tend to rise. If you trade energy stocks or ETFs, petroleum commodities and companies are apt to have big swings. Just look this week’s price action in crude oil or USO.

Never take your eye off the Fed, even when it’s in a holding pattern. Stable interest rates make investors happy and probably bullish. FOMC meetings are often a factor. A subtle change in rhetoric, particularly about inflation, can turn a snowball into an avalanche.

Markets reveal a great deal about sentiment when fundamental changes occur. Most traders evaluate several possible outcomes as preparation for scheduled events such as monthly employment or inflation reports or earnings. A good trader is aware of the impact a move in one sector may have on another. Therefore, make it a point to tag major moves or events on your charts and learn from the reactions.

John Seguin, Market Taker Mentoring