Bessent's Arguments Are Driving Positive Technical Action for Stocks
Seldom has technical action been so strong when there are so many predictions of economic disaster.
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Investors are confronting a tremendous disparity that makes navigating the market tremendously difficult.
On the one hand, the technical action is extremely strong. The indexes and many stocks have gained substantial momentum and have cut through technical overhead. There is much talk about a breakaway move to the upside and continued strength after some consolidation.
On the other hand, concern is growing about the economic fallout of tariff policies. Investors Business Daily writes, "Even if the U.S. agrees to trade-specific country deals immediately, the trade war touched off by the Trump tariffs will now hit U.S. supply chains hard, many economists and industry insiders say — and could rival the toll of the Covid pandemic."
Seldom has there been such a stark contrast between the market's technical action and the economic predictions of high-level strategists and pundits.
Treasury Secretary Scott Bessent, in a Wall Street Journal article, states that "Critics of the Trump economic agenda attack individual policies in isolation. This cherry-picking tactic ignores how these policies are interconnected. Trade, tax cuts, and deregulation aren't stand-alone measures but interlocking parts of an engine designed to drive economic growth and domestic manufacturing."
Bessent doesn't address the issue of how a collapse in shipments from China will disrupt the supply chain in the next few months but indicates that the groundwork is in place for the most prosperous decade in American history.
Recent price action in the stock market suggests that investors are embracing this optimistic view of Trump's economic policies, but the negative argument is that this is just a flurry of "strategic bullishness" that will quickly dissipate once the negative impact of trade policies is felt.
So far, the economic data is very strong, and there is no indication that a major slowdown is coming. GDP in the first quarter of 2025 was weak primarily because of a rush to build inventories before tariffs hit. That will be reversed in the second quarter and likely give a boost to GDP, according to Goldman Sachs GS and others.
My game plan here is to stick with the positive action as long as possible and react quickly to raise cash if it starts to shift. I'm not embracing the negative economic arguments of the bears until there are signs of stress in the price action. I'll have to be very vigilant and ready to move fast if conditions shift, but since there is such a high level of skepticism, the upside momentum may persist longer than many folks think is likely.
Another issue this week is that we are entering small-cap earnings season. At least a dozen stocks I own are reporting this week, and I'll be making adjustments to holdings.
At the time of publication, Rev Shark had no positions in any securities mentioned.
