Trade War: Escalation Phase

The dramatic turn in the trade negotiations that has taken place since the stock market closed on Friday, May 3 is captured in the segment below from The Wall Street Journal:

“The U.S. and Chinese governments both sent signals ahead of their trade talks in Washington last week that a pact was so near they would discuss the logistics of a signing ceremony. In a matter of days, the dynamic shifted so markedly that the Chinese deliberated whether to even show up after President Trump ordered a last-minute increase in tariffs on Chinese imports because the U.S. viewed China as reneging on previous commitments.”

The markets are adjusting to the shift from a cooperative phase in the trade war to an escalation phase. The drop in the U.S. stock market futures on the morning of May 13 after China announced another set of tariffs on U.S. goods sends a clear message the financial markets are concerned about the economic damage that could come from an ongoing and combative trade war. The million-dollar question is how long will the current escalation phase last? Markets will have higher odds of stabilizing if the U.S. and China can show some signs of possibly making their way back to the negotiation table.

BIGGER PICTURE

There has been a slight shift in the data associated with the market’s long-term trend, but nothing earth-shattering at this point. Today’s relatively small adjustment to our asset mix got us back in line with the data and respects the uncertainty related to the duration of the current decline.

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The market’s waning momentum in recent weeks told us to be open to a normal 4-10% pullback in the S&P 500. As of Monday’s close, the S&P 500 has experienced a drawdown of 4.55% based on closing prices and 5.17% using the recent intraday high and intraday low.

FIRST 90% DOWN DAY

Monday brought the first day in 2019 that featured extremely lopsided volume figures. Over 90% of NYSE volume was associated with declining issues.

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Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit ...

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