Trump Talks Tariffs With Canada, But Risks of a Substantial Pullback Are Building
If there are not some trade deals soon, investors are likely to grow restless and nervous and reduce risk exposure.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The S&P 500 failed to advance for the tenth straight day on Monday, but the decline was fairly mild. The question now is whether this will lead to a deeper pullback.
Indications are lower on Tuesday morning as investors deal with negative reactions to some good reports. Palantir Technologies PLTR is in the spotlight as this AI leader posted strong revenue and guidance, but only in-line EPS numbers. With a P/E of around 270, that isn’t good enough to attract new buyers.
Ford Motor F is also lower despite a strong earnings beat. The automaker believes tariffs will cost it $2.5 billion overall for the year and is suspending guidance due to "substantial industry risks."
These reports aren’t helping, but the much more important issue is progress on tariffs and trade deals. There are still no firm deals in place, and strategists at Morgan Stanley MS are warning that if there isn’t some progress with China soon, the market risks giving back recent gains.
President Trump is meeting with Prime Minister Mark Carney of Canada Tuesday, and it will be instructive if there is any progress in this relationship, which has become quite stressed. While a solid trade deal is highly unlikely at this point, it will be helpful if there are some areas of agreement.
The trade turmoil creates very difficult conditions for the Federal Open Market Committee’s interest rate policy decision on Wednesday. Fed Chair Jerome Powell will hold his usual press conference and is likely to face the ire of Trump, who is pushing the Fed to cut rates. A rate cut is very unlikely at this meeting, but there is likely to be more talk about the danger of stagflation and the economic fallout of tariffs.
After the jump in the market off the lows hit on April 7, technical conditions have become overbought and a little frothy. It is no surprise that a pullback is gaining traction, but the billion-dollar question is how deep it will go.
Without positive trade or tariff news, there is a substantial risk of a sizable pullback. While investors have been optimistic about progress on trade, if there are not some solid deals soon, they will grow restless and nervous and likely reduce risk exposure.
There is a flood of small-cap earnings reports this week and next, which will create volatility in small stocks that I will be watching for trades, but I’m concerned about a deeper pullback in the indexes and am reducing some positions.
At the time of publication, Rev Shark had no positions in any securities mentioned.
