Yesterday, I had the honor of interviewing Vice President Mike Pence in the Vice President’s Ceremonial Office at the White House. I asked about the role of tariffs now and in the future. It’s clear the administration believes in the role of tariffs, and points to them as a critical component of the resurgence of the American economy, along with lower taxes, fewer regulations, cheaper fuel, and pressing hard for free and fair economic relationships around the world.
I think it’s what the media gets wrong about the administration. I read an article that derisively suggested President Trump was dealing with an ‘Id and Ego’ situation, where the Tariff Man is constantly at war with the Dow Man. Folks, $360 billion in tariffs are in place, and the Dow has done very well. I think when push comes to shove, China might be careful not to listen to the American media because this administration will put American workers above corporate profits and howling of the elite Establishment.
If you crunched the actual numbers of the cost of tariffs (essentially a tax) and assumed it all fell on America (it doesn’t), it would be the proverbial drop in the bucket in our $20 trillion economy. The biggest push back has been businesses determined to upset the economy enough to spook the administration, but it would happen. So, it makes these Wall Street temper tantrums almost comical, except you can push one domino too many and create an uncontrollable panic.
Again, I don’t see this happening.
The Dow’s Wild Ride
The case in point was yesterday’s session where the market mildly reacted to news that President Trump is fine with resolving the trade battle after the 2020 elections, reminding everyone he never set a resolution deadline. That is true. The fact is Wall Street assumed December 15, 2019, was the deadline because that’s when tariffs are implemented on the rest of trade imports from China not already levied. There is still a great chance we could see tariffs delayed and the “Phase One” agreement this year.
Meanwhile, check out yesterday’s session - Dow Jones Industrial Average:
- Opens: 27,502
- Low: 27,325
- High: 27,524
- Close: 27,502
The Dow finished right where it started; after the early morning fury of selling, as buyers began to sift through the haze to find bargains.
The market breadth was lopsided except for the down volume that didn’t reflect a market in serious jeopardy, especially the NASDAQ Composite where there were only 1.08 billion shares on the downside versus 933 million on the upside.
By the way, the key Dow support was an old resistance from July and September: 27,335.
S&P 500
Energy continues to suffer while plunging yields sent buyers into the Real Estate and Utilities sectors and out of Financials.
Symbol | Select Sector SPDR Fund | Last | Change | % Change | Volume |
|---|---|---|---|---|---|
XLC | Communication Services | 51.96 | -0.10 | -0.19 | 3.96 M |
XLY | Consumer Discretionary | 120.22 | -1.22 | -1.00 | 4.53 M |
XLP | Consumer Staples | 62.04 | -0.10 | -0.16 | 20.54 M |
XLE | Energy | 58.01 | -0.88 | -1.49 | 17.13 M |
XLF | Financials | 29.54 | -0.42 | -1.40 | 67.89 M |
XLV | Health Care | 98.83 | -0.22 | -0.22 | 7.82 M |
XLI | Industrials | 79.81 | -0.88 | -1.09 | 20.42 M |
XLB | Materials | 59.06 | -0.38 | -0.64 | 8.66 M |
XLRE | Real Estate | 38.25 | +0.31 | +0.82 | 3.58 M |
XLK | Technology | 86.13 | -0.77 | -0.89 | 11.25 M |
XLU | Utilities | 62.81 | +0.17 | +0.27 | 12.93 M |
Today’s Session
Equity futures have been higher all morning long in cautious trading. There have been a couple of dips, including some pullback after the big miss on the ADP Employment report. The 67,000 print was less than half the 150,000 many expected. The report continues to underscore how difficult it’s becoming for the smallest businesses, those with fewer than 20 employees. For those businesses, finding qualified workers and being able to pay them is a huge hurdle.
Meanwhile, the very largest businesses 1,000+ continue to add a steady stream of workers.
ADP Employment Report | 1-19 employees | 1,000 + employees |
2019M01 | 31,974 | 20,341 |
2019M02 | 31,978 | 20,400 |
2019M03 | 31,983 | 20,440 |
2019M04 | 32,004 | 20,464 |
2019M05 | 31,969 | 20,526 |
2019M06 | 31,942 | 20,558 |
2019M07 | 31,924 | 20,620 |
2019M08 | 31,948 | 20,661 |
2019M09 | 31,952 | 20,686 |
2019M10 | 31,939 | 20,722 |
2019M11 | 31,925 | 20,736 |
I’m not worried, but I continue to think there will be more noise about the yield curve as it flattens more.