It’s no exaggeration to state that 2018 was an active year for the futures markets. An escalating U.S.-China trade war, U.S. congressional midterm elections, and the first Bitcoin ETF offering were a few items that kept traders riveted. Subsequently, high levels of participation became the norm, in everything from crude oil to corn.
Being a forward thinker is critical to trading futures successfully. Often, the importance of what happened earlier today pales in comparison to what may occur tomorrow. In the spirit of preparation, let’s take a look at a few trends that will undoubtedly shape the futures landscape of 2019.
Politics and the U.S. Stock Market
Dating back to the 2016 general election and surprise victory of Donald J. Trump, U.S. stocks have posted the largest bull run in modern history. The Dow Jones Industrial Average (DJIA), NASDAQ, and S&P 500 have been on a steep upward trajectory, regularly establishing new all-time highs. The gains, dubbed the “Trump Rally,” have served as confirmation that markets are fond of an unabashed pro-business administration.
However, the fourth quarter of 2018 brought a dramatic shift to the political environment. A newly Democratic House of Representatives fostered a split U.S. government for the first time under Trump’s presidency. Will a Democratic House be a thorn in the Trump administration’s side, or will bipartisanship to win the day? Next year will bring answers to these questions, with several scenarios in the markets potentially unfolding:
- Stock market correction: One of the Trump administration’s key issues has been tax reform. A Democrat-controlled House is unlikely to approve any future cuts and may challenge the validity of the 2017 tax plan. Another factor, although improbable, is the initiation of House-led impeachment proceedings against Trump. Both issues will give equities bulls reason for pause, creating an environment conducive to profit taking and correction for the U.S. indices.
- Safe-haven growth: In the event political uncertainty reaches a crescendo, institutional capital will be looking for a port in the storm. Traditional safe havens such as gold, Swiss francs, and U.S. Treasuries are likely to enter bull markets.
- A rally in the USD: The economic growth of 2017/18 created conditions the U.S. Federal Reserve (Fed) deemed friendly to inflation. Subsequently, the Fed embarked upon a course of quantitative tightening. In fact, at the September 2018 meeting, Fed members unveiled projections for interest rates to rise until mid 2020. If September’s projections are accurate, the 2019 stage will be set for the USD to gain value against the global majors.
Throughout 2019, a great deal of futures trading will be dependent upon politics. In the event that political uncertainty facing the Trump administration grows, and the Fed continues to hike rates, the bullish stock market will be tested amid safe-haven growth.
A Cryptocurrency Comeback?
This year marked the first full year of trading for Bitcoin (BTC) futures. Unfortunately for the bulls, Bitcoin values posted a massive loss, off more than 70% from December 2017 highs. Going into 2019, the financial world is wondering if Bitcoin is poised for a run at its late-2017 valuations.
For many crypto traders, a return to $20,000 per BTC seems like a pipedream. However, a glimmer of hope flickers on the horizon. Over the course of 2018, several attempts were made to launch the first major Bitcoin ETF to investors. Leading global asset managers BlackRock and VanEck entered the crypto space, unveiling plans for Bitcoin ETF offerings. Regulatory hurdles provided by the U.S. Securities and Exchange Commission (SEC) proved to be formidable, denying the plans. The saga ran into fall 2018, with the SEC promising a final approval or denial of the VanEck/SolidX Bitcoin ETF for early 2019.
While industry insiders have differing opinions on whether a Bitcoin ETF will ever come to pass, the consensus agrees that it’s what Bitcoin needs to get back on track. SEC approval of a formal Bitcoin ETF could spell a big 2019 for Bitcoin and a possible challenge of December 2017 highs.
Capitalizing on the Opportunity of 2019
One element of futures trading that must be continually addressed is the role of technology in the marketplace. Bullish and bearish trends come and go ― the growth of technology is guaranteed. As 2019 unfolds, be on the lookout for major advances in PC processor capacity. Leading companies Intel and AMD are rumored to be working on several high-powered options that can greatly reduce latencies for retail traders.
For more ideas, analysis, and predictions on what 2019 may have in store, check out a free consultation with a seasoned futures veteran at Daniels Trading.