I compiled a timeline of trade war related news from these 2 sources (here and here). People commonly assume that trade war related news is bad for the stock market. Is it? Let’s take a look at the data.
Here are the S&P 500’s forward returns after a Trump trade war related piece of news came out. See any pattern?
Click here to download the data in Excel.
The S&P 500’s forward returns (i.e. tomorrow) are random. The probability of going up vs down is 50-50.
However, trade war news do seem to be a short term bearish factor for the stock market. The stock market tends to do down on a 3 day to 1 week time frame.
But the stock market tends to go back to normal after 1 week. The forward returns after 1 week no longer have a bearish bias.
Conclusion
Today’s trade war related piece of news is probably a short term bearish factor for the stock market. But it isn’t a consistently medium term bearish factor for the stock market. I think the S&P 500’s worst case short term scenario is a revisit to this trendline:
(Click on image to enlarge)
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