Trade War Fears, Bond Pressure Hit the Market
A battle over control of Greenland and a selloff of Japanese bonds are impacting the market. Here's my game plan amid rising global tensions.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The indexes are indicated sharply lower on Tuesday morning as President Trump threatens tariffs and European countries indicate their willingness to retaliate. Trump is increasingly aggressive in using tariffs to further his foreign policy goals, and the opposition is growing stiffer. The market is reacting negatively to the uncertainty.
The selloff is primarily index-driven at this point, with breadth very negative and stocks across the board being hit.
Bond Market Pressure
Adding to the problems is a sharp drop in bonds that is sending interest rates higher. In Japan, bonds reacted poorly to growing concerns over the impact of potential tax cuts on the deficit. This is the same issue that has plagued the U.S,. but the reaction in Japan is adding some weight to the issue.
A Volatile Calendar
This surge in volatility is hitting in front of a number of potential market-moving events. Once again, there is the possibility that the Supreme Court could rule on tariffs, but there is no certainty as to the exact announcement date. In addition, Trump will be speaking in Davos at the World Economic Forum on Wednesday and is sure to address the tariff issue.
The big issue for individual stocks is that fourth-quarter earnings will start to roll out faster this week before the mega-cap reports hit next week. Tesla (TSLA) and Netflix (NFLX) will be highlights this week.
Rotation and Small Caps
One particularly interesting issue is how this surge in volatility may impact the recent rotational action into small-cap stocks. The Russell 2000 has outperformed the S&P 500 for two weeks straight and is technically extended. The main question is whether we will see some reverse rotation or if there will be broader market movement.
Tactical Game Plan
My game plan is to watch for buying opportunities in individual stocks but to move incrementally and be ready to buy lower should downside momentum increase. I’ll be watching some stop-out points as well.
The good news is that the enhanced volatility should create trading opportunities. The bad news is that there is a little panic in the air, and buyers may stand aside until there is greater clarity.
At the time of publication, Rev Shark had no positions in any securities mentioned.
