Market Holds its Own Despite Strong Trade War Headwinds!

It was a dramatic week to say the least, the Dow on track to match its longest losing streak in 40 years. But on Friday, the blue chip index said the buck stops here, finally reversing course after 8 straight losing days. Nobody can deny that the market is struggling but the best indicator of its strength perhaps has been how little it has fallen. It has been an excellent year for the tech-heavy NASDAQ, the Russell is doing fantastically well. The NASDAQ is close to the record levels set the week prior. Up some 12% this year, that’s on the heels of jaw-dropping gains of close to 30% the year prior. Likewise, the Russell has tacked on about 10% year-to-date, coming off of yearly gains of 14% the year prior. So essentially, even in the face of the headwinds we’re seeing and the ever-expanding list of products up for tariff consideration, the market has essentially shrugged off the rhetoric, jostling, and sparring between the U.S. and its main trading partners. Russia preparing a list of tariffs of its own against the U.S., investors simply have not been phased. They haven’t beaten an eyelash, and even with the Dow’s lengthy losing streak, it only dipped 2% this past week, ground it could theoretically cover in a single day – so simply put, things are not looking so bad!

The S&P 500 shed 0.9% this past week, the NASDAQ dropping 0.7%. That is not to say that fears have subsided; in fact, they have only grown, but Trump – for all his rhetoric – won’t necessarily come out on top here. Jinping and the Chinese have been known to be shrewd negotiators and in the tectonic battle between Democratic U.S. and Communist China, there would seem to be other factors at play rather than the sheer economics. China’s leader, whose name is recognized in the country’s constitution can outlive Trump and outplay him. Leader for life, he and his party don’t face re-elections that leave them scrambling for votes. And now with mid-term elections, Trump does have a lot to lose. That notwithstanding, the NY Times recently published that Trump’s approval rating among Republicans is at some 90% so if he can weather this political storm, we could be in for a long and protracted trade war.

To complicate things matter, with all the fear about, it’s not 100% clear that U.S. industries will be as hard-hit as some are saying. As long as they can alter their supply lines and find alternatives for Chinese producers, they won’t have to buy Chinese products and face stiff tariffs. At the same time, if Trump does go after most of the world all at once, from Canada to Mexico, the Euro bloc and Russia, there’s little flexibility U.S. producers have in adapting their production process. Also, there are American firms which for structural or technical reasons, would face great difficulty adapting to new suppliers. And highlighting the difficulties, there are products that are configured in stages on an international scale, and hurting one importer in the supply chain, could ultimately hurt U.S. producers as well. Throw that into the mix and it’s extremely difficult to know which industry or sub-sector could be hurt next, which means that exercising caution is all the more priority. A stock market mentor is of the utmost importance. A day trading academy and day trader courses can only teach you so much. With the vicissitudes in this market and Trump’s ability to send shockwaves through the economy with his mere utterance, every tweet can send whole sectors spiraling downwards or shooting higher.

In the words of Daniel Rosen, a partner at the Rhodium Group, “How this will play out is idiosyncratic to any given product and unique to each supply chain.” As for the overall effect, he honed in how little we know about how the geopolitical, economic developments may unfold: “Nobody can honestly claim high confidence that they understand what the overall impact will be. You may as well project the weather on a Tuesday afternoon a year from now.”

There will be a good number of key economic events this week. It kicks off with consumer confidence and housing index data on Monday, followed by durable goods orders, trade data and pending home sales on Tuesday. Then, the week caps off on Friday with personal income numbers, the Chicago PMI and consumer sentiment data. Be sure to follow these releases in day trading live.

Have a great trading week!