As China Trade War Intensifies, Hope for Deals Prevents a Deeper Market Pullback
News could come at any time, and bears don’t want to be caught on the wrong side. Here's my game plan.
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The market is set to open lower Wednesday morning following new restrictions on the shipment of a key Nvidia NVDA chip to China. This follows the cancellation of a large order that China had placed with Boeing BA for aircraft.
Despite the increasingly harsh responses, futures bounced when China indicated an openness to talks with this pointed remark: “China will be more open to trade talks with the U.S. if President Trump shows respect and reigns in point person with more consistent messaging.” China also wants Taiwan to be included in any negotiations.
There are reports that Secretary of Treasury Bessent’s negotiations with other countries include measures to isolate China. Market participants remain hopeful that a deal will be struck that will set a blueprint for further deals, but so far, there are no indications yet of when something might be announced.
Currently, the biggest obstacle to making progress is that there aren’t any talks with China yet. Both sides are lobbing bombs at each other, but the China statement this morning is a positive sign that they want the process to start.
While the tariff turmoil is causing a market mess, the hope of deals is preventing a deeper pullback. News could come at any time, and the bears don’t want to be caught on the wrong side of the news. For those who are pessimistic about the market, the best play is to sell or "fade" a positive news announcement.
The market’s biggest problem is that this tariff turmoil is occurring at the same time as a major shift in the economy. It is likely there would have been economic slowing even without the tariff war, but tariffs are obviously causing significant additional pressure.
My game plan is to not worry too much about the macro volatility but to stay focused on watching individual stocks that are finding support as we head into earnings season. Small-caps and biotechnology have shown good relative strength for a couple of days, and we will see how they hold up under pressure.
We have retail sales and a Jerome Powell speech coming up later on Wednesday, which will likely lead to a market reaction.
At the time of publication, Rev Shark had no positions in any securities mentioned.
