Last week the market consensus was that all the moves to raise U.S. tariffs on goods from China, the European Union, Canada, and everyone else in the world–were just parts of a negotiating strategy by President Donald Trump. Certainly we weren’t on the path of some kind of global trade war. It was even possible to see Friday’s up day for the major indexes as a vote of confidence in the world’s leaders: They would pull up short of wrecking the global economy.
Today, the consensus has shifted. The markets still aren’t convinced that all-out trade war lies ahead, but they are more worried, more willing to take the possibility seriously.
We’re not yet at the point where all the players are convinced that a trade war is likely–Evercore ISI told Bloomberg today that by its calculations just 54% of U.S. investors think a U.S.-China trade war is likely (I have no information on how they reached that conclusion)–but I think the markets are rattled by what seems to be a pattern of retaliation and doubling down. The U.S. announces tariffs, the European Union announces tariffs, and the United States announces higher tariffs.
The unsettling thing, in myth opinion, is that so many major players are digging themselves into positions of belligerence. U.S. President Trump lectures China and Chinese President Xi Jinping replies that China will not be bullied.
And it’s hard to find anyone on the international stage with the stature (and political standing back home) to call a halt to the escalation.
At some point–and that perhaps occurred today–the markets develop their own international momentum. Today the Standard & Poor’s 500 stock index closed just above technical support at the 50-day moving average of 2716 after falling 1.37% for the day. The Dow Jones Industrial Average closed off 1.33% to finish the day below the 50-day moving average of 24657 at 24253.
The computers that run much of the trading volume on the U.S. stock markets have certainly noticed this break below technical support. We’ll have to wait until tomorrow to see if the machines, having puzzled over today’s action, see this as a sign to sell.
So far both the NASADQ Composite Index (down 2.09% today) and the Russell 2000 Index (down 1.67%), leaders to the upside in the recent market, are holding above technical support at the 50-day moving average.