The markets could rally 15 per cent on a US/China trade deal: Allan Small

Hesitancy ruled the markets on Monday with investors waiting for indications of movement on the US-China trade front. But even if a downturn is in the cards, that’ll only make for a ripe buying opportunity, says Allan Small, senior investment advisor at HollisWealth.

Trading was mixed on Monday with the S&P/TSX composite index closing down 64.48 points to 15,568.85 with cannabis stocks pulling down the health care sector 2.66 per cent. In the US, both the S&P 500 and Nasdaq added 0.1 per cent and the Dow Jones Industrial Average fell 0.2 per cent.

Trade talks between the US and China are resuming this week, making it a critical period ahead of an early March deadline which could see US tariffs on $200 billion worth of Chinese imports shoot up from ten to 25 per cent. Another issue with a looming timeline is Brexit, where the UK has until March 29 before its scheduled exit from the EU.

The result has been a case of the jitters for the markets, says Small, which comes after an optimistic start to 2019.

“January was making up for a lot of losses in December and here we are in February and I think the market and investors in general are taking a bit of a pause,” said Small, in conversation with BNN Bloomberg on Monday.

“I think that there are a lot of key political events coming up. Obviously, Washington now goes to China to continue the negotiations and the trade talks. We’ve heard recently that things aren’t going as well as maybe we’d like to hear and overall that things are a little ways away from coming up with some sort of a deal, and I think that has affected the market towards the end of last week,” he says.

So far in 2019, the Canadian market has been performing well against its American peers, with the S&P/TSX Composite index up 8.7 per cent compared to 8.1 per cent for the S&P 500 index while the Nasdaq has done the best, increasing by 10.1 per cent year-to-date.

Small predicts that a strong signal that a trade deal is likely will mean big gains for the market, somewhere between ten and fifteen per cent.

“It would be huge for the market,” he says.

“For someone like myself, I’ve kind of taken a bit of a pause for the moment. I want to see where things go, see what happens with the trade talks and then maybe be a buyer again. I think that if we do see a bit of a selloff, it could be a good opportunity to get into some names a lot cheaper,” he says.