Just looking at the charts doesn’t show the full story. Yesterday, we saw solid gains, in fact, the fourth straight winning day after global trading frictions seemed to abate. But that was before news broke of Trump’s next round of retaliatory tariffs. The U.S. unveiled new tariffs, futures pointing to a sharp drop at today’s opening. All-in-all, the U.S. announced that it would assess tariffs of 10% on $200 billion more in Chinese goods, the S&P 500 and the Dow last down over 1% in future markets.

This trade war has in fact not hit the U.S. all that badly, emerging markets taking a much larger hit. Whereas U.S. markets are up this year, emerging markets have been walloped, smacked around, and to add their woes, their currencies have depreciated seeing the offshoots and difficulties implicit in an ongoing trade war. With the dollar strengthening, foreign investors have opted to place more money in the greenback, and with the U.S. market outperforming, it’s been more attractive than foreign markets which have been pummeled and beaten to a pulp. From China to Turkey and to Brazil, markets abroad have suffered immensely, making the hurt felt and all the more palpable.

As for yesterday, analysts were quick to point to optimism. Fort Pitt Capital’s senior portfolio manager, Kim Forrest, noted, “In the absence of bad news, we drift higher because that is what our bias has been,” adding, “Yesterday’s decision by the market as a whole to ignore trade [fears] was a pivotal, I really think.”

That would seem to be the case, but the way futures are pointing, we’re in for a gap down at the opening. Even with the market eagerly anticipating the reprieve from all of the trade news, it could be that the earnings season – expected to be stellar – just won’t cut it. With the American economy growing strongly, and inflation in check, it is true that America is much better positioned to win a trade war, but it is still uncertain how and when China and Europe will opt to use their leverage, and what other alliances they will forge in battling the U.S.

The business press has written about a “Reagan moment,” one where the world changes dramatically by virtue of pressures imposed against long-time adversaries. Then, it was the U.S. propelling the Former USSR into an arms race, a race it knew it could win. It was a risky tack and it may have accelerated the fall of what was then the Russian empire. Will Trump, here, be so successful? The jury is truly out and it’s hard to know what the offshoots are. With mid-term elections impending, and the Republicans possibly losing control of the House, it could be that dynamics on Capitol Hill will change in a way that will foil Trump’s ability to succeed in a drawn-out war. It’s also vital to recall that Trump only has 4 years in office, his Chinese counterpart is in for life, his place and name formally recognized in the Constitution. So, point blank, there is really no telling what to expect come the earnings season.

Stocks could rally beautifully, given the recent sideways trading. Alternatively, they could fall into a funk. Of late, stock buybacks have not done the trick, pushing up stock prices, causing investors to call into question the celebrated practice of buying back shares to boost earnings. With caution high, skepticism rampant, investors and traders will likely be looking more than anything not necessarily at earnings beats or misses but rather at forward guidance.

In the U.S. small business confidence survey, sentiment slipped. Further, a May U.S. job opening reading showed a slight slip from the month prior.

With May’s cabinet difficulties and the upcoming NATO meaning, there really is a lot on the global geopolitical scale. Put so succinctly and beautifully in the wake of an era of multinational rule-based trade, the operative issue at hand according to the Wall Street Journal is as follows: “As President Donald Trump flies to Europe for a week of summitry, the trepidation in European diplomatic circles is palpable. With trans-Atlantic relations at their lowest ebb in postwar history, one question has dominated discussion this year in Europe’s chancelleries and corridors of power: Is Mr. Trump’s goal to reform the multilateral system that has underpinned the West’s security and prosperity for the last 70 years? Or does he want to destroy it?”

Today’s Hot Stocks: TWTR, AAPL, WDFC, AIR



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