Tariff Worries Are Not Stopping the Bulls
Small-cap relative strength is a positive sign for speculative traders — and the Russell rebalancing is on the horizon.
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Investors celebrated a better-than-expected May jobs report on Friday and pushed the major indexes to their highest closing level since late February. All of the indexes are positive for the year, and the high point is not far off.
In view of the negativity about Trump’s tariffs and trade policies, that is an impressive performance, and the primary catalyst so far has simply been pauses in the implementation of tariffs and no actual deal.
The market’s attention will turn to negotiations on Monday between the U.S. and China in London. One of the key issues will be rare earth metals. China’s exports to the U.S. dropped 35% in May, the biggest decline since Covid in February 2020. Both the U.S. and China are motivated to avoid further economic damage, and the market appears optimistic about progress.
While there is optimism about progress on trade and tariffs, economists continue to be extremely cautious. There is talk about how uncertainty is making it very difficult for businesses to make plans and preventing hiring. While the jobs report was better than expected on Friday, there has been a steady decline in hiring. The trend is down, and that is not going to change until there is more clarity about trade.
One of the more interesting developments in the technical action is relative performance in the Russell 2000 IWM. Small-caps and groups such as biotechnology IBB have been laggards for a very long time but have seen relative strength, which is causing some hope that a major cycle turn may be occurring.
The Russell indexes are rebalanced at the end of June, which typically leads to one of the largest volume days of the year for the Nasdaq. That may have a short-term impact on the trading in small stocks. I’ll be looking through the new entries into the Russell 3000 for trading opportunities.
We have a quiet start on Monday morning as investors await news about the U.S.-China trade negotiations. There are also CPI and PPI reports coming up on Wednesday and Thursday that will be of interest.
At the time of publication, Rev Shark had no positions in any securities mentioned.
