Is this The End Of The Trade War?

Bill Poulos is a published author, avid investor, financial educator, philanthropist, and a retired General Motors executive. In 2001, he retired from GM and co-founded Profits Run, Inc. with his son, Gregory Poulos. The company provides financial materials for investment traders on managing their wealth through educated trades with minimal risks. Bill contributes his financial expertise on investing by writing for several online platforms, such as Investing, LinkedIn, and here on Medium. Learn more about Bill’s life and Profits Run on his website. Bill married his high school sweetheart in 1969. In 50 years they have raised 3 sons and now have 2 grandchildren. They live in Wixom, Michigan where Profits Run is headquartered.

An announcement was made by President Trump that Chinese officials seeking a trade negotiation “reboot” had contacted the U.S. In reply, the foreign ministry department in China said no such contact had been made, and refuted Trump’s claims.

Does it seem like you’ve heard this before?

It’s because you have- this is basically the same back-and-forth trade war hyperbole that’s shocked the market during the past year.

Trump tells us the end is near, and then China says no way. The outcome? Additional tariffs, exceeding uncertainty, and increasing frustration for investors.

In this day and age, “playing the market” means hanging on until the next headline hits. It’s always a surprise when the bombshell hits, along with what its effect will be. The usual market drivers, like economic reports and corporate earnings, don’t matter much anymore.

Because equities can be stopped dead in their tracks by a poorly timed tweet.

Or, the fun could be spoiled by another round of surprise from China tariffs, like last week.

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Don’t forget that American companies were asked by our President not to do business with China. To investors, he basically said there is no foreseeable end in sight for the trade war.

But since both sides have had time to cool down over the weekend, progress has allegedly been made. So say that’s true, and the Chinese really aren’t telling the truth about refusing contact from U.S. trade officials, does it even matter?

Falling for unsupported rumors may not be wise until there’s any real evidence to support a conclusion to the trade war. Multiple times since the hostility started we’ve seen this scenario been played out, just for negotiations to fall through thanks to continuing trade war escalations.

And finally, analysts have taken note.

“In the past, the U.S. allowed negotiations to continue for a few months before announcing additional measures,” wrote Bank of America Merril Lynch economist, Aditya Bhave.

“This time around, the U.S. upped the ante on the same day, suggesting that the relationship between the two sides has deteriorated.”

Since the beginning of August this relationship has tormented stocks with volatility. But not because of the economic impact the trade war has had, rather because of the uncertainty that comes along with it.

“A half percent to the headwind to economic growth here in the U.S. may not be the straw that breaks the expansion’s back by itself, but there are a handful of second-order effects from the trade war that are much harder to estimate,” Glenmede Trust Company’s Jason Pride wrote on Monday.

And if investors hate anything, it’s receiving “hard to estimate”, mixed signals. Stocks don’t seem to know which direction to go without a narrative to drive the market.

According to Mad Money’s Jim Cramer, we could see even more selling down the road.

“Whether or not China wants to make a deal, from what I can tell, President Trump believes the longer he holds out, the better,” he said.

“Which means we haven’t seen the last of these brutal sell-offs, so get used to them, and next time remember there’s almost always a bounce after the worse of the carnage because he wants one.”

Cramer went on to say that, “This is going to be a long slog. You need to be prepared for more pain, and you need to be able to buy that pain.”

In terms of the overarching trade war discussion, Cramer is generally right on the money. This may not be how the trade war ends, and investors need to be mindful of that.

On the other hand, they need to be just as ready for the market to recover. Because if the trade war has taught us anything, it’s that stocks have a tendency to go on historic rallies following a big tariff related sell-off.

There may not have been one for the current cycle, but trust me:

It’s coming.

And after that, another possible drop in the event that either side of the trade war ups the ante.

Is this The End Of The Trade War?

The market had a much better trading session on Monday after getting gouged on Friday. Significant gains were posted by all three indexes, thanks to a light at the end of the tunnel for the current trade war.

An announcement was made by President Trump that Chinese officials seeking a trade negotiation “reboot” had contacted the U.S. In reply, the foreign ministry department in China said no such contact had been made, and refuted Trump’s claims.

Does it seem like you’ve heard this before?

It’s because you have- this is basically the same back-and-forth trade war hyperbole that’s shocked the market during the past year.

Trump tells us the end is near, and then China says no way. The outcome? Additional tariffs, exceeding uncertainty, and increasing frustration for investors.

In this day and age, “playing the market” means hanging on until the nest headline hits. It’s always a surprise when the bombshell hits, along with what its effect will be. The usual market drivers, like economic reports and corporate earnings, don’t matter much anymore.

Because equities can be stopped dead in their tracks by a poorly timed tweet.

Or, the fun could be spoiled by another round of surprise from China tariffs, like last week.

Don’t forget that American companies were asked by our President not to do business with China. To investors, he basically said there is no foreseeable end in sight for the trade war.

But since both sides have had time to cool down over the weekend, progress has allegedly been made. So say that’s true, and the Chinese really aren’t telling the truth about refusing contact from U.S. trade officials, does it even matter?

Falling for unsupported rumors may not be wise until there’s any real evidence to support a conclusion to the trade war. Multiple times since the hostility started we’ve seen this scenario been played out, just for negotiations to fall through thanks to continuing trade war escalations.

And finally, analysts have taken note.

“In the past, the U.S. allowed negotiations to continue for a few months before announcing additional measures,” wrote Bank of America Merril Lynch economist, Aditya Bhave.

“This time around, the U.S. upped the ante on the same day, suggesting that the relationship between the two sides has deteriorated.”

Since the beginning of August this relationship has tormented stocks with volatility. But not because of the economic impact the trade war has had, rather because of the uncertainty that comes along with it.

“A half percent to the headwind to economic growth here in the U.S. may not be the straw that breaks the expansion’s back by itself, but there are a handful of second-order effects from the trade war that are much harder to estimate,” Glenmede Trust Company’s Jason Pride wrote on Monday.

And if investors hate anything, it’s receiving “hard to estimate”, mixed signals. Stocks don’t seem to know which direction to go without a narrative to drive the market.

According to Mad Money’s Jim Cramer, we could see even more selling down the road.

“Whether or not China wants to make a deal, from what I can tell, President Trump believes the longer he holds out, the better,” he said.

“Which means we haven’t seen the last of these brutal sell-offs, so get used to them, and next time remember there’s almost always a bounce after the worse of the carnage because he wants one.”

Cramer went on to say that, “This is going to be a long slog. You need to be prepared for more pain, and you need to be able to buy that pain.”

In terms of the overarching trade war discussion, Cramer is generally right on the money. This may not be how the trade war ends, and investors need to be mindful of that.

On the other hand, they need to be just as ready for the market to recover. Because if the trade war has taught us anything, it’s that stocks have a tendency to go on historic rallies following a big tariff related sell-off.

There may not have been one for the current cycle, but trust me:

It’s coming.

And after that, another possible drop in the event that either side of the trade war ups the ante.

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