Trump Sends Tremor through Markets

March 2, 2018.

What killed the market yesterday?! Ironically, it was Trump, the very same Trump who’s taken credit for the market’s meteoric gains, the very same Trump who more than anything has used market performance as a surefire gauge of his executive performance. All it took was a matter of words! Trump slapped on tariffs on two key industries: aluminum and steel, sending jitters down through the entire market. In getting himself elected, Trump campaigned as the anti-politician, a populist candidate who successfully bucked both the Democratic and Republican parties, taking stances often not popular with both – but rather turning to the electorate. And now, like they say, “You make your bed, you sleep in it.” Trump talked the talked, now he’s walked the walk, and the question is whether or not he can handle the market backlash. Having failed to gut Obamacare, Trump succeeded in cobbling together the largest rewriting of the tax code in most recent memory – but now, investors are learning that it’s not just a bowl of cherries, that Trump made a lot of campaign promises, some of which he has the authority and carte blanche to keep, and this afternoon the market got a strident wake up call. Protectionism – Trump style, that is – might be here to stay, and before you know it we might be seeing a tit-for-tat trade war, that hurts all parties involved, creating inflationary pressure that stymies growth and shrinks the economy.

Art Hogan, B. Riley FBR. weighed in on the state of affairs: “One of the largest fears we have is we’ve got tariffs. We could have trade wars, and it could blow up NAFTA negotiations, and nobody wins a trade war.” Newly instated Fed Chair, Jerome Powell also commented that there were more benign – and perhaps effective – ways to cope with an ongoing trade imbalance. Powell wasn’t the only one sounding the siren call. Jefferies chief financial economist, Ward McCarthy, noted: “Tariffs would probably have the unfortunate effect of both slowing growth and accelerating inflation, and that’s not a good thing.”

The move, all-in-all, leaves little choice for car producers, i.e. pay more for raw material – in other words reduce profits – or alternatively, pass on the price difference to the end consumer.

Market Summary: The blue chip Dow fell 1.68%, the S&P 500 tumbling 1.33%. The NASDAQ shed 1.27%.

Steel and aluminum companies were obviously big movers yesterday. United States Steel (X), Nucor (NUE) and Century Aluminum (CENX) were big movers yesterday. X was up 5.8%, NUE, by 3.3%, and CENX by 7.5%. In other market news, Best Buy (BBY) was up 4% on higher than expected earnings and revenues, Kohl’s (KSS) though ending off 5.1% after disappointing with its earnings numbers. Barnes and Noble (BKS) fell 3.3% on its fiscal Q3 loss. Another retailer, L Brands fell close to 14%, after seemingly disappointing with its quarterly outlook. We did get a quarterly results beat from Salesforce.com (CRM), the software company rising 2.7% on the day.

On the auto front, car companies took what can be called a double whammy. Not only set to suffer from the tariffs, but U.S. sales tapered in February, Ford (F) seeing a sales decline of 6.9% in February. The Fiat Chrysler Automobiles U.S. unit saw sales fall 1%.

In market news, the ISM manufacturing index climbed in February to 60.8% from January’s 59.1% reading, the index recording its highest level since May ’04. Jobless claims dropped 10 thousand, hitting their lowest level in almost 50 years. An inflation index, the personal consumption expenditure (PCE) inflation index was up 0.4% in January. With that said, the annual PCE index came out at 1.7%, beneath the Fed’s desired 2% target. Construction in January was unchanged.

The Economic Calendar is thin with Consumer Sentiment at 10:00.

Let’s look today for follow-up movement and commentary after the debacle yesterday. The greatest fear, as noted, is retaliation, so let’s see how other companies respond. The tariff slapped on steel is 25% and 10% for aluminum. Whether this will prompt inflation in its own right cannot be know right now, but one can assume the nations affected won’t go down without a fight. What gives the market the jitters even more is the claim on Trump’s part that the tariffs are motivated by “national security concerns,” meaning that every country is liable to have such concerns, heightening the risk that what we got yesterday is just round 1!

The Dow traded off as much as 586 points yesterday. Will “America First” backfire?! It could very well be that global trade might suffer, and that even Trump’s nationalistic aspirations will backfire, Apple, for example, selling 63% of its goods and services outside of the U.S last year. Resultantly, industrials took one of the biggest losses on the S&P 500, the sector on aggregate off 1.8%. Caterpillar (CAT) toppled 2.9%, Boeing (BA) plunging 3.5%.

Friday’s Hot Stocks: FL, JD

Have a great trading day!

New York Strategy Swing