Tariff Angst Provides Convenient Excuse for a Much-Needed Pullback
The market appears to be growing weary of unfulfilled promises, while a 10-day streak ends.
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The S&P 500 and other indexes hit new all-time highs prior to the July 4 holiday on a burst of optimism about the Trump budget bill, progress in the Middle East, and a number of other accomplishments. While the mood was extremely positive, the indexes were technically extended and didn’t have any immediate positive catalyst to keep them running higher.
As is often the case, market players found a convenient reason to justify taking profits. That excuse was renewed concern about tariffs. President Trump sent letters to Japan, South Korea, and South Africa stating that increased tariffs will go into effect on August 1. More letters are expected in the next few days.
Tariffs had been on the back burner while other issues moved to the forefront, but they are now the top issue once again, and there is little clarity about how things will develop. The Trump administration continues to indicate they are close to finalizing several deals, but the market appears to be growing weary of the unfulfilled promises.
Monday is the first time in the last 10 trading sessions that the S&P 500 closed lower than it opened. There has been a steady stream of intraday strength since the market bottom in April, so the weak close is a notable shift in the price action.
This is just one day of action, and it is too early to conclude that a major shift in market character is taking place. However, some increased vigilance is needed. The tariff issue caused a very deep dive back in April, and there is no certainty that it will be resolved quickly or easily.
Market breadth was nearly four-to-one negative, which is the worst in a while. Both the Magnificent Seven MAGS and the Russell 2000 IWM lost about 1.5%. The indexes are still technically extended, but there is plenty of support at lower prices. While it was unpleasant action on Monday, it is too early to call a market top.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
