This Week’s Message: Why the Blah Reaction to the Impressive Jobs Report?

In light of legitimate fears among the punditry over the state of the economy, today’s employment report was virtually perfect: 196,000 jobs created, 3.8% unemployment, and decent wage growth.

Suffice to say that the report allays recent recession worries, while, at the same time — despite the wage growth — doesn’t scream inflation. And, go figure, as I type the Dow’s up a paltry 37 points. Hmm…. 

While the Dow was up a bit more than 37 points earlier this morning (and the day is still young), it’s never a good sign when the market doesn’t react as it should to good news. Although the Nasdaq is still up a half a percent (but even that doesn’t jibe enough with today’s impressive jobs report).

So why the let’s call it blah reaction in stocks? Well, see below:

  • China’s President Xi is pushing for a sooner-than-later resolution to the trade dispute. However, while President Trump was pushing for the same just a few weeks ago, as of this morning he’s in no big rush, “could take weeks”.
  • The looming threat that a deal would have existing tariffs remain has traders very much on edge. 
  • Save for this morning’s jobs report, the hard data is quickly catching up with business sentiment around the trade war, which suggests that the utterly unavoidable attendant economic headwinds don’t abate if tariffs remain; validating bullet point 2.
  • This morning the President told the press that “tariffs work. They’re working beautifully for our steel and aluminum producers.” He also threatened Mexico with 25% tariffs on cars coming across the border (a number of which are U.S. brands by the way??), which has the market fretting over the prospects for him tariffing cars out of Europe. Traders know that that would be hugely bearish for stocks.
  • While it appears as though the President has walked back this week’s threat to close the US/Mexican border, the billions of dollars worth of business that crosses said border on a daily basis makes it, well…. let’s just say that there’s billions of dollars worth of business that crosses said border on a daily basis (the mere willingness to go there!!). Imagine the market reaction! Or don’t if you don’t want to have nightmares!

While there are alternative narratives out there that pooh-pooh my fixation with the ills of protectionism, readers should know that while I’ve written extensively over the years on this most pernicious topic, when I enter the markets I have to see things as they are, leaving my biases at the door. And I can tell you with great conviction that, as I day-in-and-day-out track market movements, my bullet points above capture the market’s present primary concerns. 

Of course we could ponder over the prospects for Brexit, the coming earnings season, market technicals (which are good) and all things economic, while those are indeed legitimate topics to cover (and we know doubt will going forward) — and can/will move markets in very short-term — fundamentally, they all take a back seat to the present issues surrounding global trade.
Have a wonderful weekend!

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