It's all coming down to President Donald Trump and the China trade war if the market can close out the year with gains, according to Wall Street strategists and investors.
Trump has been repeatedly touting stock gains and blaming sell-offs on the Federal Reserve and his impeachment inquiry. But some Wall Street analysts say any losses from now on will be on him after the central bank pulled off a complete 180, cutting rates three straight times this year.
"The Fed has put the ball firmly in President Trump's court," Matthew Maley, chief market strategist at Miller Tabak, said in a note Thursday. "They've cut interest rates THREE times … and they've begun a QE program (even though they say it's a non-QE program). What more could Mr. Trump ask for?"
The central bank has slashed interest rates by a total of 75 basis points this year, after hiking the borrowing cost four times in 2018. The rate increase in December was seen as the culprit for a steep market sell-off, but an easier monetary policy this year has provided the economy with some cushion against the damage from Trump's trade war with China.
"Trump's trade policy has definitely softened the U.S. economy and the Fed responds with three cuts and says it's back in Trump's court, therefore everyone is looking at what happens now with this trade deal," Peter Boockvar, chief investment officer at Bleakley Advisory Group, said in an interview.
"The Fed gave the market what it expected and they are not going to give them anything more anytime soon. It's all about China," Boockvar said.
The third rate cut this year didn't stop Trump from railing against Fed Chairman Jerome Powell. The president said "people are VERY disappointed" in Powell a day after the rate announcement.
"China is not our problem, the Federal Reserve is!" Trump tweeted on Thursday. "We will win anyway."
In fact, markets on Wednesday cheered Powell's rate cut and his clear signal it would be a while before any hikes. Stocks only turned sour after a report saying China is casting doubt over the possibility of a long-term trade deal due to Trump's "impulsive nature."
"The Fed is doing its job; I believe the Fed has been dynamic and responsive," Mike Loewengart, vice president of investment strategy at E-Trade Financial said in an interview. "The markets are going to be bound to the day-to-day news cycle on any type of progress on trade."
Trump said Thursday he will sign a "phase one" trade deal with Chinese leader Xi Jinping "soon," and it will represent 60% of a long-term agreement. Earlier this month, the two nations reached a truce and started drafting a limited deal that includes a pause in tariff escalation and a pledge for China to buy U.S. agriculture products.
However, many experts said the deal is less specific and significant than what Trump originally set out to pursue.
"Phase one is very cosmetic, rather than anything of substance from what we are seeing so far," Boockvar said. "Even if Trump signs phase one, is that going to be enough to relieve worries on the part of business? We don't know yet."
The S&P 500 hit a new all-time high on Monday on the back of strong earnings and progress on trade as the U.S. and China said they were close to finalizing a partial deal. The benchmark is up 20% this year and its future will largely hinge on Trump's stance on trade.
"If the stock market declines in any meaningful way over the 12 months leading up to the 2020 election, President Trump won't be able to blame the Fed," Maley said. "Yes, he WILL TRY to blame them if a correction takes place … but it won't work any more … now that the Fed has COMPLETELY reversed itself over the past 10 months."
In addition to the Fed, Trump has also indicated the weakness in the stock market is related to the Democrats' impeachment probe. "The Impeachment Hoax is hurting our Stock Market," Trump said in a tweet Thursday.