Yes, I said it. Trade wars are bullish for the stock market and here is the rationale behind it. Since obviously, President Trump only cares about the stock market going up so he becomes richer (and maybe his base), the trade war he is starting will make the one body that can actively do something, the Fed, act. The Fed is planning on having 3 interest rate hikes this year and next year. The Fed just raised rates at its latest meeting. If a trade war were to see the US and China trading barbs with tariffs on goods, the Fed will not raise interest rates any more. If it was that dire, the Fed could even lower interest rates back. China could even retaliate and start dumping Treasury’s, which than the Fed will intervene and buy these Treasury’s and increase its balance sheet. In all these scenarios of the trade war, the Fed’s moves, independent of Trump, will be music to the markets pushing stocks higher. We have seen this over the last 10 years with the Fed stepping in to prop up the markets. So Trump in his rambling incoherent wisdom will show that a trade war is actually bullish for stocks.
Now for trading during this holiday shortened week, we will watch for the latest escalation between the US, Europe and China on potential tariffs. On the economic calendar, we have Consumer Confidence and US GDP.
Trade Wars: So obviously, nobody likes any wars but investors will be watching to see if President Trumps announced tariffs have countries announcing tariffs of their own. As we have seen with recent tariff announcements, the markets react negatively having 700 point or 2.5% down days for the Dow and broader markets. Any additional announcements will see equities go lower. However, investors will move into safer assets such as Treasury’s and the Japanese Yen, pushing Treasury yields lower.
GDP Final Release: On Thursday (3/29) we get our third and final release of US GDP for the 4th quarter of 2017. The first release is the most impactful, the 2nd not so much. On the 3rd, if a line item were to surprise final, the markets can react accordingly. If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker than expected, expect equities to fall.
Good Friday: Markets are closed in the US, Canada and Europe this Friday (3/30) for Good Friday. These same European markets (not the US) are closed the following Monday for Easter. Somewhere in Europe this Thursday, Homer Simpson is saying, “WooHoo, 4 day weekend!”