Trump’s Unilateral Trade Concessions Aren’t Enough to Turn the Market Trend Higher
I'm focused on a sector largely unaffected by tariffs and avoiding several others. Here's what to know about this tough trading market.
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The market has reacted favorably to signs that President Trump is softening his stance on some tariffs, but it still appears that little progress is being made in putting a trade deal together. China stated that there are no current trade talks and demanded that all unilateral tariffs be dropped for any deal.
After a strong two-day rally, the market early Thursday is lower on this headline, and the dollar is weak once again. The good news is that interest rates are slightly lower in the early going.
The key question is how much more upside the market has without some solid news on trade. All the big recent rallies have come on cutting back some tariffs and positive comments about progress on trade negotiations, but there haven’t been any actual deals so far. It has mainly been unilateral concessions on very harsh tariff terms by Trump, which the market likes to see, but that isn’t going to be enough to power this market higher.
There are now growing concerns that businesses and consumers are going to start feeling real economic impact from the trade turmoil. There is a notable slowing in trucking and shipping, and anecdotal evidence of supply problems.
Some of these problems have been reflected in earnings reports and conference calls in which guidance has been suspended. Tesla TSLA, for example, was unable to offer any clarity about the next few quarters due to the great uncertainty that it is facing. Many retailers face similar problems.
The main thing that is supporting the market now is the hope that a solid trade deal could be announced with a country such as Japan or South Korea. If a deal is announced, that will serve as a framework for many more and would produce a boost in sentiment.
I’ve been staying focused on stocks that have limited tariff exposure. Biotechnology, for example, is largely unaffected by trade issues, but it still has high volatility due to overall market conditions and shifting levels of liquidity. I’m avoiding semiconductors, retail, and most technology names, which have the highest levels of uncertainty.
It is an extremely tough market to trade if you have a time frame of more than a few days. If you are playing, you have to be ready to move very quickly and play a strong defense.
We have mild softness in the early going Thursday, but attention will turn to Alphabet GOOGL, which reports earnings after the market close Thursday. Alphabet will be the first major AI company to report, and will be an important indicator of technology.
At the time of publication, Rev Shark had no positions in any securities mentioned.
