Stock trading activity has been exceptionally bullish on US bourses in recent months. The 1-year performance of all the major US indices has displayed robust growth across the board. At the time of writing (January 18, 2018), the following performance was reported:
• The New York Stock Exchange composite index is up 19.26%
• The S&P 500 index is up 23.36%
• The Dow Jones Industrial Average is up 31.87%
• The NASDAQ composite index is up 31.37%
For traders and investors, the bull run has been extended indefinitely. The election of Donald Trump has facilitated a market-friendly economy where domestic and international business has all the resources needed to flourish. Evidence of this is found in 3 key areas:
- Comprehensive tax reform has dropped the corporate tax rate down to 21% – this is a major development for the US economy, and for global trade. Already companies like Apple have pledged to invest billions of dollars in the domestic economy, while companies like Walmart will now be raising the salaries and wages of workers. Additionally, various car manufacturers have decided to rethink plans to set up shop abroad and will now be reinvesting in the domestic economy.
- Monetary tightening will boost the value of the USD – the federal funds rate is currently 1.25% – 1.50%. The Fed FOMC is meeting on 31 January 2018, but there are no expectations for a rate hike. By March 21, 2018, the CME FedWatch anticipates a 72.6% likelihood of a 25-basis point rate hike in the region of 1.50% – 1.75%. Theoretically, this should boost the value of the USD, but it can have a negative impact on stock prices since many companies borrow money to finance their operations. This would reduce their personal disposable incomes, but it is not always a linear relationship.
- Tech companies like Google, Facebook, Amazon, Twitter and the like are up – these companies have experienced robust growth in 2017, and much the same is expected in 2018. At the time of writing, Google was trading at $1,131.98 per share, Facebook was trading at $177.60 per share, Twitter was trading at $24.56 per share, and Amazon was trading at $1,295 per share. What’s interesting to note is that the majority of the tech companies driving Silicon Valley and the NASDAQ are trading well above their 50-day moving averages and their 200-day moving averages. In the case of Google (GOOG) the 50-day moving average is $1,051.92 per share, and the 200-day moving average is $963.18 per share.
Given the confluence of factors currently in play, it is difficult to anticipate with any degree of certainty which direction the stock market will move. What is clear is that US bourses are trading at record levels. Investors seeking to hedge against stock market volatility will do well to consider alternative investments in their financial portfolios such as derivatives trading instruments.
For traders, the best CFD definition is as follows: ‘A CFD is a derivatives trading instrument. A CFD (contract for difference) does not require the trader or investor to purchase the underlying asset. Instead, the trader purchases a certificate at a set price for delivery in the future. The buyer and seller agree on that price and the trade is concluded.’
The benefit of a CFD is that traders do not need to concern themselves with purchasing the underlying asset and waiting for it to appreciate in value. You can trade a CFD in any direction – up or down. The only thing that matters is the price of the instrument, and whether you have forecast it correctly. It’s a great investment idea for hedging against the inevitable downturn which is going to come with the stock market.
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