Stocks Rise But Trade Questions Loom
The bull market everyone loves to hate keeps running.
Positive economic data continued to propel stocks higher today, but the shadow of a trade war kept exuberance in check.
The news on trade got worse over the weekend and today. Regardless, investors preferred to focus on reassuring reports that indicate robust jobs creation and restrained wage growth. Tech stocks led the rally.
Friday’s employment data offset trade anxieties, for now anyway. The Labor Department reported on June 1 that the unemployment rate dropped to 3.8% in May, its lowest reading in nearly two decades. Wage gains remained muted, which means inflation is less of a threat.
Stocks soared on the job news Friday, with gains extending into Monday. But don’t kid yourself. Trade conflict is causing deep fissures among western allies, which keeps stocks from breaking out into a sustained upward trajectory.
European Union officials asserted yesterday it was unlikely that next week’s G7 meeting in Canada would resolve tensions generated by a U.S. decision to impose tariffs on imports from Mexico, Canada and the EU. The Trump administration announced last Thursday it would slap tariffs on steel and aluminum imports on the three entities. All three plan retaliation.
G7 finance leaders Sunday expressed anger over the tariffs in a rare show of united disapproval against the U.S., following a meeting ahead of the summit next week in Quebec.
Canadian Prime Minister Justin Trudeau uncharacteristically lost patience Sunday and called the tariffs against his country “frankly insulting.” Trudeau said that he is having “a lot of trouble getting around” the idea that longtime U.S. ally Canada has suddenly become “a national security threat to the United States.”
There was speculation in the media today that President Trump may skip the G7 summit altogether, to register his wariness of multilateral deals. If the president does attend, the summit could more accurately be called G6-plus-Trump.
The G7 appears to be unraveling, which would fulfill one of the fondest dreams of Russian President Vladimir Putin. Long term, growing divisions between America and its traditional allies can only be seen as bad for investors.
China yesterday warned the U.S. that any agreements reached on trade and business between the two countries would be automatically void if the White House implements tariffs.
Trump ramped-up the trade rhetoric Monday, railing against Chinese and Canadian trade barriers on agricultural products.
In a Twitter post today, the nation’s Tweeter-in-Chief stated:
“China already charges a tax of 16% on soybeans. Canada has all sorts of trade barriers on our Agricultural products. Not acceptable!”
A trade war is breaking out on three continents. If left unchecked, protectionism could torpedo economic growth and usher in a prolonged stock market slump.
Targeting red states…
Countries affected by Trump’s tariffs plan revenge. American manufacturers and agricultural producers are in the cross hairs.
Mexico’s Secretary of Economy Ildefonso Guajardo vowed that his country would impose tariffs on goods and services from red states that voted for Trump in 2016:
“These are products that have political implications in districts, where important house members and senators have been raising concerns to President Trump about how he is managing these decisions. At the end of the day, the effect of this will fall over voters that live in districts that have a voice and a vote in the U.S. Congress.”
These products include Harley-Davidson (NYSE: HOG) motor cycles from Wisconsin, orange juice from Florida, whiskey from Kentucky, tobacco from North Carolina, and wine from California, to cite just a small sampling.
Tariffs are giving “red state” farmers the blues. Case in point: Mexico is threatening to impose a new 20% tariff on hams and pork shoulders from the U.S., which would devastate the economy of deeply Republican Iowa.
As the largest pork producer in the U.S., Iowa produces nearly $5 billion worth of pork each year, over three times more than the second-largest pork producing state.
Does China play hardball on trade? Without a doubt. Are tariffs an effective way to deal with the problem? Absolutely not. You won’t find a credible voice on Wall Street who thinks tariffs are a good idea.
The vast majority of economists and corporate leaders decry tariffs as counterproductive. They say tariffs raise the cost of goods, reduce output, destroy jobs, and exacerbate geopolitical tensions. History proves their case.
Markets rose today, but here’s how I see it: Investors are becoming desensitized to any trade threats that can be dismissed as negotiation tactics. That’s a delusional and dangerous mindset.
Investors see Trump as the boy who cried wolf. They’re tuning him out. But let’s remember how that fairy tale ends. The sheep get eaten.
Monday Market Wrap
- DJIA: +0.72% or +178.48 points to close at 24,813.69
- S&P 500: +0.45% or +12.25 points to close at 2,746.87
- Nasdaq: +0.69% or +52.13 points to close at 7,606.46
Monday’s Big Gainers
- Deciphera Pharmaceuticals (NSDQ: DCPH) +47.86%
Biotech reports strong clinical trial data.
- Genomic Health (NSDQ: GHDX) +23.07%
Genetic testing firm boasts study that proves efficacy of its methods.
- Petroleo Brasileiro (NYSE: PBRA) +9.64%
Oil giant lifted by new management, rising oil prices.
Monday’s Big Decliners
- Nektar Therapeutics (NSDQ: NKTR) -41.82%
Investors disappointed with biotech’s clinical trial results.
- Jounce Therapeutics (NSDQ: JNCE) -33.48%
Biotech’s clinical trial data miss the mark.
- Canadian Solar (NSDQ: CSIQ) -13.86%
Solar power firm hit by disappointing earnings, trade war fears.
Letters to the Editor
“Economic growth remains on track. Should I consider cyclical stocks?” — Edward J.
The shrewdest approach is to pinpoint undervalued cyclical companies that also enjoy distinct competitive advantages and pricing flexibility. By dominating their respective niches, these companies offer protection against downturns or unexpected external shocks.
Questions about the global economy? I’m here to help: firstname.lastname@example.org
John Persinos is managing editor of Personal Finance and Radical Wealth Alliance, as well as chief investment strategist of Breakthrough Tech Profits.