Wall Street Is Losing Confidence in Trump as 'Obsession With Tariffs' Persists
The technical damage is severe, and the fear is that this will help push the economy into a recession.
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The bullish view of Donald Trump was that he would use tariffs as a negotiating tool to quickly extract concessions from trading partners for fairer deals. While there has been some of that, there is growing concern now that Trump’s obsession with tariffs will persist, push the economy into a recession, and raise the danger of stagflation.
Long-term bull Ed Yardini said late on Thursday that he is cutting his S&P 500 target to 6400 from 7000 because tariffs are now turning into trade barriers that "jeopardize US inflation and economic growth."
Both CPI and PPI posted softer-than-expected inflation readings, but that is not helping the market because there is a growing fear of a recession. If inflation drops because growth slows, that is not a positive development. Consumer spending, which is the foundation of the economy, is showing obvious signs of slowing and is weighing on the retail sector.
The fear that Trump’s obsession with tariffs will help to push the economy into a recession is what has driven the S&P 500 into a technical correction. However, one thing that is certain about Trump is that he is unpredictable and may change his approach at any time.
There is growing pressure on Trump to deal with the negative reaction of the market to his trade policies. So far, he is dismissing it as a temporary problem caused by a major reshuffling of the economy, but with the danger of a recession building, there is increased skepticism that things are heading in the right direction.
The good news is that on Friday morning, the indexes are heading higher, and it now appears that a government shutdown will be avoided. Senator Chuck Schumer has indicated that he will not fight the Republican bill, which essentially means that it will pass. This is a major victory for the Republicans and provides some hope that they will be able to put their economic program into place. Still, Congress has no control over tariffs, which is the source of the economic chaos.
There is a little less uncertainty once a government shutdown is removed, but the tariff issue is not going to be clarified easily, and there is also the problem that Putin is not rushing to embrace a cease-fire in Ukraine.
The market action on Thursday was poor enough that any good news on Friday would produce a rebound, but there is little hope that a major bottom-up will be in place. The technical damage is severe, and the likelihood of failed bounces is very high. Lately, the tendency has been to sell into any early strength, but we may be oversold enough to find a little better support this time.
Enjoy the bounce, but don’t trust it to last very long.
At the time of publication, Rev Shark had no positions in any securities mentioned.
