Trade Tensions Heat Up and Pressure the Market Once Again
There are many negatives out there, but if Trump and Xi agree to talk, conditions will improve quickly.
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An uneasy trade truce between the United States and China is showing signs of stress as both sides accuse each other of a lack good faith. The rhetorical threats are heating up, and it is impacting equities, bonds, currencies, and precious metals.
The S&P 500 is indicated lower by about 0.5% in the early going Monday. Interest rates are rising, the dollar is under intense pressure again, and money is flowing into the safety of gold.
The major indexes have struggled to build momentum recently, but they have held up well and seen some solid signs of support. There were two big jumps in the S&P 500 during May when delays of tariffs were announced with China and the European Union. That provided a nice boost in optimism, but there are no solid signs that a deal can be made, and that is making investors nervous again on Monday morning.
The other recent major positive has been solid economic data. Despite predictions from many economists and pundits that tariffs would increase the odds of stagflation, there have been no data yet to back up that concern. Economists say the fallout from tariffs is coming, and that is keeping market sentiment quite negative, but so far there is no hard data to back that up.
The May Jobs Report will be issued Friday and will be very important as a potential warning sign of a slowing economy. There isn’t any major economic news in the meantime, so we will likely continue to hear very gloomy predictions from the economic bears.
In addition to trade and economic worries, concerns are building about the ballooning level of national debt. There is growing pressure in the Senate to cut more spending, and that will make passage of Trump’s "big, beautiful" budget and tax bill more difficult.
While the market is technically vulnerable to a pullback, there is some very important nearby technical support. The first big level is the gap created on May 27 when the delay of tariffs with the EU was announced. If the S&P 500 fails to hold 5843, that gap is likely to be filled and would put into play the 200-day simple moving average at 5785, and then the China tariff delay gap would likely start to fill all the way down to 5700.
On the positive side, every time these trade worries erupt, there is a quick bailout and reassurance that things are progressing well. If President Trump and China's President Xi do schedule talks, as has been suggested, there is likely to be a positive market reaction.
At the time of publication, Rev Shark had no positions in any securities mentioned.
