Trump Upends Market Momentum With Latest China Threat

The market shrugged off a poor start on Tuesday morning and was chugging along quite nicely until President Trump went after China again on trade. This time, he threatened termination of cooking oil purchases in retaliation for China's failure to buy soybeans from U.S. farmers.

It is unclear how big of a market this is, but it highlights the struggles that the U.S. is having in making a trade deal with China. The market is nervous about this relationship, which generates high levels of volatility every time China is mentioned.

Despite the selloff in the last hour of trading, there was plenty of strong trading in individual stocks once again. Sixty-six percent of stocks finished with gains, and there were over 200 new 12-month highs. Money rotated into small caps again with the Russell 2000 (IWM)  gaining 1.5% while the Magnificent Seven (MAGS)  lost 1.2%. Nvidia (NVDA)  lost over 4%, with weakness in Bitcoin also contributing to the selling pressure.

Earnings reports from major banks didn't do much to help trading, with both JPMorgan (JPM)  and Goldman Sachs (GS)  in the red despite their reports being pretty good. We will have more reports on Wednesday morning to consider.

Market volatility has increased recently, which is triggering some profit-taking by investors who use trend-following strategies. When the uptrend turns choppy, these traders tend to reduce positions to protect profits. Some of the selling pressure in the data center group on Tuesday is a good illustration.

I raised some cash on Tuesday, not because I'm bearish but because I want a higher level of flexibility if volatility continues to increase. The strong reaction to Trump's China comments is adding some risk to the market, and I'd like to be in a better position to take advantage of that if it drives a deeper selloff.

Have a good evening. I'll see you tomorrow.

At the time of publication, DePorre was long NVDA.