Stocks Deliver Big Victory by Doing Nothing

The history books will show that U.S. stocks ended little changed on Tuesday, with the MSCI USA Index gaining a barely perceptible 0.26 percent. But for investors, the bigger takeaway is that stocks largely held on to their gains from Monday, when they posted one of the biggest mini-rallies since the broader sell-off started in early October. That’s a very encouraging sign for bulls, given the number of potentially negative developments that could have easily sent equities tumbling.

Perhaps the biggest factor working against stocks was an interview President Donald Trump gave to the Wall Street Journal late Monday. In it, he said he’ll likely push forward with plans to increase tariffs on $200 billion of Chinese goods if t alks with China’s leader Xi Jinping later this week at the group of 20 summit in Argentina fail to produce a trade deal. Trade is undoubtedly important, but the amounts are a pittance relative to the $19.4 trillion U.S. economy. More importantly, consumers — whose spending accounts for about two-thirds of the economy — are shrugging off the correction in equities. The Conference Board said Tuesday that its consumer confidence index dipped just 2.2 points to 135.7 in November from an 18-year high of 137.9 in October. As long as consumers are feeling pretty good, then it’s possible that investors will have greater confidence in corporate earnings actually growing about 11 percent next year as forecast. Although that’s lower than this year’s projected gain of 27 percent, it still would be an impressive result this late in the economic cycle. That’s why so many market participants are scratching their heads over the swift contraction in price-to-earnings multiples.