After Handling Pessimistic Fed, Trade Deal News Puts Market Uptrend Back on Track
As investors anxiously await the U.S.-U.K. trade deal announcement, here's why this is important.
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The S&P 500 is indicated higher in early Thursday trading on news of a U.S. trade deal with the U.K. President Donald Trump posted on Truth Social that he will hold a "Big news Conference" at 10 a.m. ET concerning a major trade deal. "The first of many"!!!.
This is an extremely important development as it will demonstrate that the Trump administration can close a deal. There have been many promises and plenty of optimism, but this will be the first tangible result. The next question will be how fast additional deals can be made.
The next deal will likely be with India. With both the U.K. and India there are fewer obstacles than with other countries because they do not have many non-tariff barriers to trade. The main issue with both the U.K. and India is the level of tariffs, which is much easier to resolve than issues like currency manipulation, dumping, VAT taxes, etc.
The market reaction to this news is fairly mild so far, which indicates some doubts about how easy it will be to close further deals with countries that present more obstacles. The next ones on the list are likely to be India, Japan and South Korea, but China is the big dog.
Treasury Secretary Bessent will be meeting with China this weekend to try to de-escalate the tariff war, but on Wednesday, Trump indicated that he was not willing to cut the 145% tariffs he imposed. While this may be bluffing, it illustrates how tough a deal with China is likely to be. China has far more economic ramifications than nearly all other countries combined.
A trade deal announcement is also extremely important because it will go to the heart of the concerns of Jerome Powell and the Federal Reserve. The Fed warned on Wednesday that the risks of both inflation and unemployment have increased. While there is no hard data yet, tariffs have the potential of creating conditions that are ripe for stagflation. A trade deal will wipe away some uncertainty about the impact of tariffs and help to combat the growing concerns about the economic fallout.
Technically, the indexes are in good shape. After a very strong nine-day winning streak, there has been a relatively shallow pullback, and now the recent highs are being probed by Thursday's trade deal announcement. The market handled the unfriendly Fed quite well, and now there is a shot at the S&P 500 testing major overhead resistance at the 200-day simple moving average.
There is still a lack of investor confidence and a very high level of bearishness, but that may actually help to fuel a stronger upside move if trade deals create some fear of missing out.
Bitcoin IBIT is trading sharply higher and is reflecting stronger speculative interest.
Note: I'll be out for most of the next couple of days to attend my daughter's graduation from Penn State University.
At the time of publication, Rev Shark was long IBIT.
