Latest on Trade (Why Are Stocks Down?)

What’s in Today’s Report:

  • Latest on Trade – Why Are Stocks Down This Morning?
  • Market Set Up Beyond Trade (Two Problems)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Wednesday is an Important Day)

Futures are down more than 1% as markets digest the U.S./China trade situation.

Nothing specifically bad happened over the weekend on U.S./China trade, but Friday’s talks ended without a clear next step and that’s weighing on markets.

Additionally, Friday’s afternoon rally came despite any concrete,  positive catalyst, so we are seeing those gains reversed and then some.

There are no economic reports today and just two Fed speakers, Rosengren (9:05 a.m. ET) and Clarida (9;10 a.m. ET), and neither should reveal anything new.

So, focus will be on the trade headlines and tea leaves.  Anything that points to a specific next step (a date or event) in the U.S./China trade negotiation should help stocks rebound, while a continued lack of a concrete next step will increase market anxiety the longer it goes on.

Tom Essaye Interviewed with Yahoo Finance on May 6, 2019

Tom Essaye joined Yahoo Finance’s Zack Guzman and Heidi Chung to discuss how Trump’s tariff threat could influence global markets. Click here or the video below to watch the full interview.

Yahoo Finance video clip


Time to Chase Stocks? Not So Fast

What’s in Today’s Report:

  • Time to Chase Stocks? Not So Fast.

Money flows were risk-on overnight thanks to continued trade-war optimism but stock futures are off the highs following more soft economic data overseas.

Trump said he would push back the March 1st tariff deadline, which was previously considered a “hard date,” if there is “good progress” towards a trade deal at that time while President Xi is now expected to attend talks on Friday. Both are incremental positives for the prospects of a successful deal.

Economic data out overnight was less optimistic however. EU Industrial Production fell –4.2% vs. (E) -3.2% Y/Y in December which is just the latest release fueling concerns about a global economic slowdown.

Today, the January CPI Report (E: 0.1%) will be watched closely ahead of the open while there are several Fed speakers before lunch: Bostic (7:15 a.m. ET), Mester (8:50 a.m. ET), Harker (12:00 p.m. ET).

The major focus of the market right now however remains the trade negotiations in Beijing and stocks will be most sensitive to any material headlines regarding the ongoing talks.

Tariffs and Valuation

What’s in Today’s Report:

  • Tariffs and Valuation

US futures are modestly higher and most overseas markets were little changed to higher overnight as the latest announcement of tariffs on China were largely shrugged off.

Late yesterday, the Trump Administration released the details of the next wave of tariffs on China: 10% on $200B worth of imports going into effect on 9/24/18 increasing to 25% at year-end.

The tariffs go into effect sooner than expected but the 10% rate into year-end leaves plenty of room/time for constructive negotiations which is why global shares are trading “ok” today.

Today, the market focus will be dominated by the new tariffs and what’s next in the trade war. As far as other catalysts go, there is just one economic report: Housing Market Index (E: 67.0) and no Fed officials are scheduled to speak.

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Tariff Update (It Was an Important Weekend)

What’s in Today’s Report:

  • Tariff Update (Bottom Line from the Headlines This Weekend)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures are modestly lower following mixed trade headlines over the weekend.

The WSJ had two important trade articles over the weekend.  The first stated the Trump administration will implement 10% (vs. (E) 25%) tariffs on Chinese exports, while the second said if that happened, China would cancel the next round of trade talks.  Asian markets dropped 1% on the combined stories, but European and U.S. markets are taking a “wait and see” approach and are down only marginally.

Economically, the only notable number was EU Core HICP, which met estimates at 1.0% year over year.

Today focus will be on whether the new tariffs are formally announced, and whether that ends up in the cancellation of next week’s U.S./China trade negotiations.  Economically, there’s only one report, Empire State Manufacturing (E: 23.0).

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Political Update for Investors, April 27, 2017

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Political Update for Investors

Trading yesterday was driven by multiple political-related headlines. Politics reasserted itself on the market narrative on Wednesday, helping stocks initially rally following renewed hopes for an Obamacare repeal/replace bill, and after the Trump Administration unveiled a significant (though expected) tax cut plan.

Yet despite the media focus on those two events, any actual progress with healthcare or taxes remains unlikely (and didn’t get better yesterday). The third piece of political news, an investigation into aluminum imports by the Commerce Department, was the most important (yet underfollowed) political development for markets yesterday.

I cover each issue below, cut through the noise, and get to any likely market influence. The bottom line is that despite generally favorable headlines, all the political news yesterday was a mild net negative for stocks.

Trump Administration Tax Cut Plan.

What Happened: The Trump Administration unveiled a sweeping tax cut proposal that included a 15% corporate rate, just three individual tax brackets, doubling the standard deduction, and repatriating overseas profits.

Why It Matters: Corporate tax cuts remain the easiest catalyst for a stock breakout, but unfortunately the tax plan revealed yesterday is very unlikely to pass Congress, and the reason is simple: There is no offset to the reduced revenue from lower taxes. As such, this plan will increase the deficit, and that likely means Democrats can filibuster the bill. Going forward, unless a tax plan contains some material offsets to reduced taxes (like border adjustments) then passage of any big tax cuts remains unlikely in 2017, and that’s stock negative.

How Markets Reacted: Tax-related headlines can still cause a pop in markets, but only a credible plan that can pass Congress will be a bullish gamechanger. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at

Healthcare Bill (Obamacare repeal/replace).

What Happened: The details were fast and furious on this yesterday, but as of this writing it appears the House will vote on the bill potentially this weekend, and odds of passing are decent.

Why It Matters: Passage of an Obamacare repeal/replace increases the chances of tax cuts also passing, as it will increase Trump’s political capital and provide more revenue to offset tax cuts. However, even if this bill passes the House, the chances of passage in the Senate in the current form remain slim. So, while a potential moral victory, it won’t significantly increase the chance of healthcare reform, and as such I don’t see it as a bearish gamechanger for healthcare ETFs (XLV, IHF, IBB).

How Markets Reacted: Stocks (including health care names) largely ignored this news, as again the likelihood of any Obamacare repeal/replace becoming law remains slim. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at

Tariffs and Trade.

What Happened: Yesterday the Commerce Department announced an investigation into aluminum imports. No tariffs were announced, but it certainly looks to be moving in that direction. This announcement comes one day after Commerce levied taxes on Canadian soft lumber imports. Additionally, a Politico story hit midmorning that President Trump was close to signing a document notifying Mexico and Canada that the US intends to withdraw from NAFTA within six months. The document does not guarantee a US exit (they can change course), but it is a necessary legal step to begin the process. Since yesterday the White House has said it’s not preparing this document yet but didn’t squash the idea all together.

Why It Matters: These trade events yesterday (and this week) are actually the most important political events of the week, not because of their immediate impact (Canadian lumber and aluminum tariffs don’t mean a trade war, and the NAFTA announcement is likely for negotiating leverage), but it does remind markets of Trump’s potentially disruptive trade policies. That matters, because right now markets have not priced in any trade-related headwinds, so this does represent at least a modest risk to the bullish narrative.

How Markets Reacted: All the trade headlines weighed slightly on stocks during the late afternoon, but the current headlines simply aren’t bad enough to warrant an outright reversal in stocks. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at

Bottom Line on the Political Update for Investors:

Material “gaps” remain that must be filled if the S&P 500 can sustain a meaningful breakout above 2400, including 1) The gap between political expectations and political reality, 2) The gap between too-low Treasury yields and very high stock prices (although that’s narrowed some-what this week, but not enough), and 3) The gap between soft economic surveys and hard economic data.

In the very short term, investor sentiment seems skeptical, and the market acts as though investors are more afraid of missing a breakout than they are a break down (similar to what we saw when the S&P 500 broke through 2300). So, the “pain trade” looks higher short term and that’s helping stocks.

But given valuations (the S&P 500 trading nearly 18X 2018 earnings), I don’t think sentiment alone is enough to push us decidedly through 2400 without positive resolution on some of these gaps. That means we need 1) Actual progress on tax cuts (which didn’t happen yesterday), 2) A rally in the 10 year above 2.40%, or 3) Better economic data starting today.

I am therefore sticking with my call that the 2300-2400 broad trading range in the S&P 500 should hold, and I would not be chasing stocks at these levels.

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