Weak Consumer Spending Pushed Down GDP Estimates

Trade Tensions Cause Futures To Sell Off

Recently there has been a trend where stocks open higher and then fall throughout the day because of trade tensions. The key factor in determining when the selloff occurs is when the news comes out. If it comes out the night before, the futures decline, then the market opens less weak than the futures imply, and finally stocks move up throughout the day. That’s the action which occurred Monday. The futures sold off because on Sunday night the EU stated it would put a tariff on $294 billion worth of goods it sells to America if Trump puts the 20% tariff on European autos that he threatened to enact last week. The $294 billion tariff threatened by the EU would have a $13 to $14 billion impact on U.S. GDP.

It’s ironic to see that Trump’s stated goal of getting the EU to lower its trade barriers is being met with tariffs which are trade barriers. These tariffs won’t destroy the economy, but the fears could stifle business growth. The entire situation is very uncertain. It’s tough for a business to act on a policy because it can easily be reversed if the countries come to an agreement. Businesses don’t want to get caught up in the game of chicken.

As I mentioned, the S&P 500 recovered throughout the day. The S&P 500 was up 31 basis points and the Russell 2000 was up 0.73%. I think it’s fair to say that the S&P 500 won’t hit a record high until the tariff situation is resolved. The longer it takes, the closer the end of the business cycle will be, limiting the bull market’s gains. Energy was the worst performer as oil was down 21 cents to $73.94. Tech was the best performer as it was up 0.99%.

The Shanghai index crashed to a new low on Monday as it was down 2.52%. Since its peak in late January, the index is down 22%. The further it falls, the more leverage Trump has in the trade negotiations. To be clear, the Chinese economy is seeing a secular slowdown. It’s not weakening because of the tariffs as most are still bluster. The Chinese stock market is also less important to its economy than the U.S. stock market is to its economy.

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