Technical Conditions Are Solid. But 3 Daunting Negatives Are Lurking
Here's the best course of action for traders and investors amid strong fundamental headwinds.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Following an ugly reaction to a poor bond auction on Wednesday, the market has stabilized and is trading mixed. Bonds TLT rebounded after a gap-down open on Thursday, but the dollar UUP remains under pressure.
Overall, technical conditions remain solid with signs of support, but upside momentum has cooled. The S&P 500 is still well above the big gap on the chart that was created on news that tariffs on China were being cut substantially for a 90-day period. If that gap comes into play, the complexion of the market will change quickly.
The primary issues the market currently faces are fundamental. Three major issues will provide a strong headwind.
First is higher interest rates. While bonds recovered a little from the selloff on Wednesday, there is no clear indication that interest rates have topped. The dynamics causing the pressure on bonds are still in place, and further downside cannot be ruled out.
The second issue that the bears are watching is the macro data. So far, there has been no notable slowing in growth, job data are still good, and there hasn’t been any tariff-driven increase in inflation. However, the economic bears are quite confident that something negative will come soon as the impact of trade and tariff turmoil starts to flow through the supply chain, although the pessimists have been wrong so far. Any softening in macro data is likely to generate a strong negative reaction.
The third issue that could trip up the market is a resumption of tariff uncertainty. The are no indications that new trade and tariff deals are advancing. Treasury Secretary Bessent has indicated that China tariffs could rise again when the 90-day pause period is over. The market celebrated the pause in tariffs and will be very unhappy if there is not some progress to resolve the issue.
For now, the best course of action is to stay focused on the price action and wait to see if any of these three negatives gain some traction. Sellers have plenty of good excuses if they want justification to lower market exposure, but so far, they are not availing themselves of those justifications.
We have a slightly negative start on Friday morning with new home sales data due out at 10 a.m. ET.
At the time of publication, Rev Shark had no positions in any securities mentioned.
