Nervous Traders Flee the Scene in the Final Hour
The last-hour selling is a strong clue that market participants are still very concerned about tariffs.
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It was a "buy the bad news" day, with investors jumping in after the imposition of tariffs on Canada, Mexico, and China. It took about an hour after the open, and some retaliatory tariffs by Canada, but market players decided that the world wasn’t going to end and started putting some money to work in stocks.
Unfortunately, they quickly grew nervous and did not stick around for long. A bout of selling hit in the final hour of trading and took the indexes well off the afternoon highs. The last-hour selling is a strong clue that market participants are still quite concerned about tariffs.
Breadth was solidly negative at the close but better than the 3 to 1 negative reading early in the day. New 12-month lows jumped to over 1,200 names due to the early weakness.
While the early dip buying indicated some hope that tariffs have been discounted by the market, there is still a tremendous amount of uncertainty about what will happen next. The late selling probably had something to do with the concern that President Trump may have more economic surprises when he speaks on Tuesday night at a joint session of Congress.
Tariffs may end up being an economic positive as they lead to some new trade deals, but that could take months. In the short term, there is tremendous uncertainty as there isn’t even any clarity about what tariffs are going to go into effect, and even then, we won’t know the full economic ramifications for a while. Tariffs will impact not only equities but bonds, interest rates, and currencies.
The most important thing to keep in mind right now is that all this market movement has almost nothing to do with the merits of individual stocks. When macro issues like tariffs drive the action, then all that really matters is the movement of the indexes. This leads to mispricing, but stocks can stay mispriced for quite a while. The key is to stay patient and wait for the bargains to start exhibiting some better price action rather than try to catch them as they drop.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
