Can Earnings Save Us from Another Trade War Torpedo?

Here we go again…

The Trump administration is making good on its trade war threats, posting a list of another $200 billion in Chinese goods that are now fair game for new tariffs.

The tariffs would begin on August 30, according to Bloomberg, comprising a broad list of items “from TV components to badger hair.”

I don’t know much about international badger hair demand, but investors are apparently spooked. Futures tanked on the news, with the Dow coughing up more than 260 points after the story broke last night. The S&P 500 and Nasdaq Composite weren’t far behind, each giving back about 1% in extended trade.

Asian and European shares are sharply lower this morning. U.S. stocks have yet to get up off the mat. Meanwhile, assets that are most vulnerable to additional trade war shenanigans are getting crushed. Copper, for instance, is down another 3% today. It’s now down more than 15% from its 2018 highs and a potential breakout. Today, it’s pushing toward 11-month lows.

Coppers collapse

The comeback in the Dow Jones Industrial Average that caught our eye earlier this week might also be in peril. The Dow had posted a nice little four-day winning streak capped off by yesterday’s 143-point gain. These gains are now in jeopardy if this morning’s losses hold.

Frankly, I’m sick of talking about trade wars. But that’s the reality we’re dealing with as investors right now. What’s especially maddening about this whole trade war ordeal is the fact that the economy is firing on all cylinders. Every blip of data is coming in red-hot.

Even the maligned American worker who has suffered through a generational recession and stagnant wages over the past decade is finally getting his day in the sun…

“Americans quit their jobs in May at the fastest rate since 2001, showing that workers feel so good about the economy they are willing to leave one company for another,” MarketWatch reports. “Most workers who leave jobs voluntarily end up getting better pay or benefits elsewhere. More people are willing to make the switch when the economy is booming.”

There you have it. The economy is booming. The stock market has remained mostly resilient in the face of countless tariff threats. Yet there’s some fear bubbling up from the depths of the market each time a new trade war headline breaks…

I’m sure this isn’t the last we’ll hear about trade war developments today. Once again, we’ll need to see if Trump’s team will rush to put out the fire or ignore recent market weakness. Over the past couple of weeks, Treasury secretary Steven Mnuchin and top economic advisor Larry Kudlow have tried to soften Trump’s rhetoric and talk stocks higher.

The administration has said from the start that it would look to the stock market as a “report card” for how his economic policies are performing. I’m sure these sharp market reactions are not going unnoticed.

Now we look forward to earnings season to help soften the blow. Analysts expect second-quarter earnings to grow more than 20% year-over-year, MarketWatch reports. If the market starts clocking some impressive earnings beats this week, all this trade war nonsense could get pushed to the back burner for a while.

Sincerely,

Greg Guenthner

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