The Trade and Tariff Rally Cools as Attention Turns to Economic Data
Will those who missed out on the rally increase exposure on dips, or will economic concerns keep them on the sidelines?
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The fast and furious rally that was triggered by positive trade and tariff news slowed down on Wednesday. Big-cap technology continued to lead and produced some gains, but breadth was nearly two-to-one negative, and profit-taking hit many names.
Over the last month or so, the only news that had any significant market impact was tariffs and trade. There was a massive celebration on the agreement with China to substantially cut tariffs for 90 days while negotiations continued. President Trump’s visit to the Middle East helped to keep the positive momentum going as trillions in new deals were announced.
While these trade headlines resulted in more positive market sentiment and reduced concerns about recession, now the focus is turning to the specifics of the economic impact of trade and tariffs, and there are concerns that difficulties lie ahead. Many economists believe that it is too late to avoid the inflationary impact of tariffs, and there are also signs that economic growth is cooling. While trade deals will help, the impact will not be immediate, and the economy was already starting to cool before the recent barrage of trade news.
Technically, the indexes are much improved but are extended and need to consolidate gains. They can afford to give back some of the recent move, but the key will be whether there is strong interest in dip buying. Will the folks who missed out on this rally try to increase exposure on dips, or will economic concerns keep them on the sidelines?
Fed Chair Jerome Powell will be speaking on Thursday, and market players will be looking for clues as to how the central bank views the recent progress on trade. There has been growing concern that the Fed will need to delay rate cuts until late in the year because of inflationary pressures. Bonds have been in a steady decline, and rates have been rising, which is confirmation of the concern about the likelihood of higher prices down the road.
The price action is still quite positive, but the bearish economic narrative is gaining traction and attention.
Alibaba BABA missed on both the top and bottom lines and is trading down about 5% early. I’ll be looking for an opportunity to buy this weakness.
At the time of publication, Rev Shark was long BABA.
