As President Trump continues its talks about an imminent trade war, his rants are slowly but surely starting to make an impact on the stock markets. As soon as the US increased its Chinese import tariffs, the Dow took a major knock, falling by a whopping 219 points.
Surprisingly enough, it took the stock market quite a long time to respond to a scenario that it would usually respond to faster, and that’s the on-going tariff announcements which Trump has been making thus far. This is especially interesting when you consider the fact that these increased tariffs will have a negative effect on US business owners, leading to a spike in inflation and less business overall.
Not only that but there’s a possibility that other EU countries and China might respond with an increase in their tariffs as well, which means that US companies will have to pay extra in order to export products into these countries.
While all this talk about import tariff and trade wars doesn’t seem to bode well for the stock market, the market showed some resilience there for a moment. The Dow Jones saw steady growth climbing up 100 points on Friday all the way to an impressive 143 points by Tuesday.
However, we have to look at these increases from a macro perspective and consider other contributing factors such as all the hard work that traders who are not on vacation have been putting in. These guys have been pretty much increasing prices while everybody else wasn’t looking, creating favorable market conditions for sellers and buyers alike, but this might come back to bite everyone later though.
Then we have to consider all the speed bumps coming up ahead for the market, such as the investigations being currently conducted in Washington. Meanwhile, the US Department of Labor announced an increase in employment, while unemployment numbers continue to soar. Many analysts think that this may lead to higher interest rates from the Federal Reserve and an unfavorable economic situation in the long run.
On the other hand, you’ve Trump’s latest cabinet shift, which saw him nominate Brett Kavanaugh to the Supreme Court. Now, this move will surely have a positive effect on the stock market, especially when you consider that Kavanaugh will most likely maintain stringent control of government agencies while taking an extreme pro-business position.
Traders who put their bets in early for Kavanaugh are probably smiling right now, and when you consider this announcement in light of the coming corporate earnings reports, a much better picture of Wall Street starts to form.
According to Thomson Reuters, S&P 500 companies are set to see a healthy 8.1% increase in revenues, accompanied by a 20.6% average surge in earnings. Trump’s tax plan from earlier this year is starting to pay off for most companies who will now experience better profits, all without having to sell more products. That said, these high earnings could also mean trouble for the stock market, as revenue and profit fall-outs will most definitely follow the recently announced tariff increases.