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Stock Market Talking Points:

  • US Q4 GDP data will include influence of partial US Government shutdown
  • The data will have a significant impact on equity sentiment as US Trade Representative Lighthizer dinged trade war optimism on Wednesday
  • Oft cited as an economic growth bellwether, Caterpillar will be a bellwether stock to watch in Thursday’s session

View our Economic Calendar for the release of US Q4 GDP tomorrow and other important data for the majors.

The Dow Jones and S&P 500 are in precarious states after Wednesday saw a slew of comments from US Trade Representative Lighthizer, Fed Chairman Powell and to a lesser - more political - extent, Gary Cohen pressure the indices.

S&P 500 Price Chart: 1 – Hour Time Frame (December 2018 – February 2019) (Chart 1)

S&P 500 price chart

Learn the differences between the S&P 500, Dow Jones and Nasdaq

In what proved to be the most market-moving comments, Mr. Lighthizer’s testimony to the Senate dealt a sobering blow to the trade war optimism that has been circulating since early last week. Thus, the indices forfeited gains they achieved last week and traded precariously lower in their respective wedges. As the session progressed the two equity markets were able to claw their way back to positive territory but an undeniable blow to sentiment was dealt.

A Brief History of Major Financial Bubbles, Crises and Flash-Crashes

Tomorrow will deliver a pivotal piece of information for the US equity market as US Q4 GDP is released. The data includes the impact of the partial US Government shutdown that totaled 35 days and sapped an estimated 0.13% from GDP per week. That said, Caterpillar will be an important stock to watch as it is oft cited as a global growth bellwether. Unsurprisingly, the heavy-machinery maker has lagged the broader Dow Jones as global growth concerns weigh but Thursday’s data could spark a return to parity.

Caterpillar Price Chart: Daily Time Frame (September 2016 – February 2019) (Chart 2)

dow jones price compared to s&p 500

Ratio of Dow Jones to S&P 500 in red overlaid on Caterpillar (CAT)

Similarly, a solid GDP print could improve the performance of the S&P 500 relative to the Dow Jones. Since October’s rout, the Dow Jones has outpaced the S&P 500. Traditionally, the opposite is true as the S&P 500 reflects more acute speculative interests – and therefore greater return - while the Dow provides exposure to growth-dependent, blue-chip companies. Follow @PeterHanksFX on Twitter for updates and analysis on the US equity space.

Sentiment data from IG also puts forth an interesting picture, highlighting the difference in sentiment between the two equity indices. While short interest in the S&P 500 has risen sharply amongst IG’s retail traders, the same cannot be said for the Dow Jones where a larger number of traders have entered long positions.

dow jones sentiment

See how IG clients are positioned on the Dow, Gold and the S&P 500 with our free IG Client Sentiment Data.

S&P 500 sentiment

Apart from hard data, trade wars will remain at the forefront of investor concern. With President Trump’s return from Hanoi, markets may gain further clarity on his proposed meeting with Chinese President Xi Jinping as the negotiations progress.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: New Zealand Dollar Trades Lower on Disappointing Trade Data

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.