Today’s menu of headlines was a perfect test of the prevailing two market-moving factors; the Fed and the trade war.
And, right on cue, the President said today that the two sides remain far apart and that he can go a lot further with tariffs; $300+ billion worth of imports further, to be exact. Although, given that the new hard line taken by China didn’t provoke a stronger rebuke, and outright promise of more tariffs from Trump suggests that perhaps the playing field (in terms of confidence/momentum), has, at a minimum, leveled.
As for the Fed, right on cue, as the Dow went from slightly green to just a bit red (~60 pts) on Trump’s comments, Fed Chair Powell reiterated publicly that a rate cut’s coming later this month. On that, the Dow meandered its way back into the green, then, as the day wore on, drifted back into the red (albeit barely) by the close.
Clearly, of the two prevailing market-moving factors, the accommodative Fed owns the day.
Question being, does the market have it right? Can, indeed, the Fed keep conditions propped up long enough to stave off further economic deterioration until something positive breaks on the trade front? Well, I think I tipped my hand with my statement at the end of paragraph 2 — I’m fairly certain that things will be far bumpier than the market currently has priced in.