Bessent Keeps Bears at Bay But Threat of Recession Looms
Scott Bessent suggested new trade deals could be imminent and that helped push the market to a higher close for the sixth straight session.
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The S&P 500 closed higher for the sixth straight session on Tuesday with a gain of 0.6%. Optimism about trade continues to be the primary driver behind the buying. There are indications that a trade deal with India will be announced at any time, and President Trump is heading to Michigan to talk about easing restrictions on automobile tariffs and he likely will announce other modifications that will be market-friendly.
Secretary of the Treasury Scott Bessent indicated that a deal with India was easier to negotiate because it was mostly pure tariffs, and there were no other trade barriers in place to contend with. He also indicated that they are close to a deal with South Korea.
Optimism about progress on trade deals has kept the bears at bay despite their continued predictions that economic disaster awaits. Ironically, it is the "professional" investors who are fighting this rally, as they believe that they have some special insight into how economic events will unfold. Technicians are enjoying the positive momentum, and the mood is hopeful and upbeat.
In the next few days, there will be some very important earnings reports and economic news, but if the market stays optimistic about positive trade outcomes, then it won’t matter. The biggest market danger is that uncertainty about trade outcomes and elevated tariffs for a prolonged period will tip a vulnerable economy into a recession.
Consumer sentiment is already quite weak, and there is an outflow of foreign investors buying U.S. assets. Those things can shift quickly if there is more certainty about trade, but if there isn’t, the momentum is to the downside.
The good news is that there continues to be broad strength, with the Russell 2000 small-cap index outperforming. The biotechnology sector IBB continues to rebound, and other groups that are less tied to foreign trade are attracting inflows.
We will have substantial new flow for the next two days on trade, earnings and the economy, which should produce elevated volatility. So far, dip buyers are doing a good job of buying weakness, but they are looking for bigger and faster swings on major earnings and economic news.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
