The Market Is Embracing Trump’s Upbeat Economic Forecast
The best explanation for recent market action is that investors have lost confidence in the warnings of economic bears.
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Worries about tariffs and trade are the perfect excuse for an overbought market to correct, but so far, all that is occurring is a pause and some churning. The S&P 500 has pulled back slightly from the all-time highs hit prior to the July 4 holiday, but sellers have not gained any traction, and there is solid relative strength in small-cap stocks IWM, which gained 0.7% Tuesday.
The best explanation for this action is that investors have lost confidence in the economic bears who have been warning for months that tariffs are going to trigger a surge in inflation and slow economic growth. That hasn’t happened, and there are few signs that it will.
The Trump administration is increasingly stressing how economic predictions are wrong. Secretary of the Treasury Scott Bessent not only questions the claim that tariffs are inflationary but insists that the U.S. economy is on the verge of producing exceptional growth.
The administration is so confident that the economy and inflation are on firm footing that they are constantly attacking Fed Chair Jerome Powell for his reluctance to cut interest rates. They believe that this is a major policy mistake and is cutting potential U.S. growth by trillions.
The market appears to be embracing this economic argument, which is why the harsh tariffs expected to go into effect on August 1 are not having an impact. There have been no indications in the data that there is a problem, and consumer surveys show that inflation expectations have fallen sharply.
Next week, CPI, PPI, and consumer sentiment will be reported. The bears are hoping that there will finally be some signs of economic deterioration, but the technical action of the indexes indicates investors are not sensing that as a likelihood.
Many individual stocks need some rest and consolidation as they head into earnings season in the next few weeks, but so far this has been a very tepid market correction, and it looks like there is very strong support.
At the time of publication, Rev Shark had no positions in any securities mentioned.
