When the markets close today, week two of this latest round of tariff troubles will be squarely in the rearview mirror.
Now it's time to come to terms with a fundamental truth of investing: The markets exist as a "discounting mechanism" - meaning that traders and investors take into account the probabilities of future events and price the market today to best reflect those future outcomes.
If that is our active premise - and I believe it should be - then the markets don't really think that the world will erupt into an all-out trade war.
Far from it, in fact. Because, from the highs seven days before the latest tariff salvos, the biggest drop the market could muster was 4.1% from the highest to lowest points of the last month.
As I write this Friday morning, we're only down 1.8% below those lows.
This confirms what we're seeing: that the market doesn't think there's a big probability of a full-blown multilateral trade war.
In any case, it's certainly not currently pricing in much fear.
On the other hand, we're not climbing higher either.
And with two full calendar weeks of trading behind us since the last "tariff tantrum," we're clearly in...
... another box. Of course, if you've been with me for a while, you'll know we've been in this all-too-familiar territory before, albeit for very different reasons.
Let's take a look:
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Friday's push higher means we're trying to break out of this box, and since Fridays are usually pretty good trend days, we have a good chance to break out of that box.
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Today's push was aided and abetted by the monthly employment report that came out pre-market. It was another just-right "Goldilocks" report; it was positive enough to boost (or at the very least support) sentiment on the economy, but not so hot as to ignite speculation that the Fed might jam its foot on the breaks.
Three items of note showed up in this important report from the Bureau of Labor Statistics:
- Job growth remained strong, with 213,000 jobs added versus an expected 195,000.
- Importantly, this was tempered by an actual increase in the unemployment rate from 3.8% last month to 4.0%. This is attributed to more people looking for employment, a normal summertime occurrence.
- Most importantly, the wage growth was lower than expected at only 2.7% (vs. 2.8% expected).
This combination of more jobs added (a sign of a strong economy) and low wage growth (a sign that inflation is not yet heating up) puts us in a sweet spot, where the Fed is not likely to tighten monetary policy any faster. And that's a very market-friendly outcome, as we saw in the early price moves this morning.
And so our posture is to keep a bullish short-term bias, buying quality stocks as they reach pullback extremes.
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About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.