SAN FRANCISCO, Calif. – Wall Street has a poor start in December, and investors are bracing for an up-and-down sentiment on the end-of-year period as fear over the US-China trade negotiations increases.
One of the major US indexes, the S&P 500 index, has marked its third successive losses on Tuesday, recording its nearly 2% decline after its record high close last Wednesday. The recent decline for the index came after President Trump stated that the partial trade deal with China might not be reached before 2020 comes, suggesting that the discussion might continue until after the election set for November 2020.
Market players are especially sensitive about the potential weakness of the market as the year ends, following the last month in 2018, which marked the worst end-of-year for Wall Street following the Great Depression.
According to the senior investment strategist at Allianz Investment Management, Charlie Ripley, the news about trade has suddenly turned upside down following the negative headlines of new tariffs, which caused a risk-averse sentiment in the stock market.
Wall Street has been particularly sensitive to trade talks this year as it went up and down following trade-related comments and tweets from President Trump. But overall, the market has prolonged its decade-long rally with the help of low-interest rates.
Trade-related shares have marked around 21% gains this year, although it’s a bit short from the 23% increase for the S&P 500 index, suggesting that market players are cautious about the hopes for a trade deal in 2019.
However, the positioning in terms of stock options has been a bit cautious, especially those with contracts expiring nearly after December 15, which is the scheduled date for the new US tariffs in Chinese goods worth around $300 billion, including toys, laptop computers, and cellular phones.
Although it is not unusual that there is a partiality towards the defensive options in the broad index options, the put-to-call ratio for the S&P 500 options is on the most defensive in the last five years. It is according to the Trade Alert data.
The defensive position of the index as the year ends suggest to stem from a basket of worries and concerns regarding the trade deal not finalized, as well as the market players trying to protect Wall Street’s gains this year, said the Vice President of trading and derivatives at the Charles Schwab in Austin, Randy Frederick.
Frederick further stated that with the 25% year-to-date gains, it is expected that there will be some sort of downtrend hedging as market players seek for protection and security, especially with the December 15 tariffs looming over.