Trump did it again.

By Jani Ziedins | End of Day Analysis

Apr 05

Free After-Hours Update:

Thursday was another strong day for the S&P500. Unfortunately that doesn’t matter anymore because after the close Trump announced he wants to triple the Chinese tariffs. It seems China hurt his feelings when they “unfairly retaliated” against his first and second rounds of tariffs.

Clearly someone doesn’t understand how trade wars work. Unfortunately that person is the president of the United States. To save one-thousand jobs in the steel and aluminum industry, Trump is now threatening hundreds of thousand, if not millions of Americans jobs in other industries. Even the steel and aluminum industries are opposed to his trade war because it doesn’t matter what aluminum and steel prices are if their manufacturing customers’ businesses are crumbling.

The overnight futures plunged 1.5% on the news. If that’s all that happens, then we should count ourselves lucky. The market’s latest rebound was based on the idea that the worst of the trade war is behind us. That the last couple of weeks of threats were nothing more than posturing ahead of far more reasonable negations and thoughtful compromises. Unfortunately Trump threw cold water on that idea and now the market has been thrown back into turmoil.

I wish I could say this will turn out fine and this is nothing more than the start of another buyable dip. An opportunity for those that missed Tuesday’s rebound to jump aboard the rally. Unfortunately no I longer have those convictions. Things would be different if I knew we were dealing with a “rational actor”. Someone who made sensible decisions based on the facts and chose what was in his own best interests. But clearly Trump is not acting this way. Nearly every member of Congress, both Democrats and Republicans alike are unified against this trade war. Very rarely do both sides of the aisle agree on anything, but they are quickly coming together over this. The business community is equally unified in their opposition to Trump’s trade war. And 100 years of economic experience learned the hard way taught us it is impossible to win trade wars. Too bad Trump isn’t listening.

Are today’s threats simply more political posturing ahead of negotiations? I wish I knew. But the one thing I do know is the market hates uncertainty and I don’t think the stock market is going to forgive Trump as easily this time. Fool me once, shame on you. Fool me twice, shame on me. It will be interesting to see how this turns out, but this is one of those things that is better watched from the safety of the sidelines.

There is a chance Trump could quickly backtrack on his threats. And maybe China’s leadership will be the bigger man and won’t respond to Trump’s threats. But no matter what, traders are quickly learning to distrust Trump. The market hates uncertainty and the way Trump handles himself does nothing but stir up controversy and uncertainty. Mr. Trump, thank you for the tax cuts, but the rest of us would appreciate it if you didn’t touch anything else.

It’s really hard to say how the market will respond to these headlines. A lot of nervous owners have been selling the tariff headlines over the last few weeks. They have been replaced by confident dip-buyers who were unafraid of these headlines because they assumed everything would work out. Which until this evening looked like it was happening. Will these confident dip buyers remain as confident when Trump is threatening to escalate the trade war for a third time? Will they confidently sit through China’s inevitable retaliation? Maybe. Or maybe they will lose their nerve and “get out before things get worse”.

I was one of those confident dip buyers and everything looked awesome this afternoon as my profits were piling up. But all of a sudden I’m not as confident anymore. I have a reasonable profit cushion, but I’m definitely less confident than I was this afternoon and I will seriously think about locking in profits tomorrow. If too many people feel the same way, Friday could be an ugly day. The only thing we can do is wait for China’s response and hope that confident owners stay that way.

Jani

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

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(7) comments

Martin April 5, 2018

Trump is an idiot, narcissist little man with small ego. Let’s hope we witness what happened yesterday when markets opened 35 points down and recovered it all by the end of the day. But i am not much optimistic about it. This guy takes it personally. It is no longer a national interest thing but his personal vengeance…

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Monty April 5, 2018

It’s a shame that China, et al have been allowed by prior incompetent Presidents to get away with murder. The trade imbalance has got to be dealt with. China is hardly still a fledgling, struggling economy. We shouldn’t be paying 10% tariffs whilst they pay 2.5%. Do you really agree with that? If so, move to China. What I have come to realise about President Trump is that the buck stops with him. Or maybe you want to leave all these colossal problems for your grandkids?

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    Jani Ziedins April 5, 2018

    LOL. Like our president, you don’t understand economics. China is oppressing their people’s standard of living and exporting the fruits of their labor to the United States for pennies on the dollar. Their people earn $3/day day and we get iPhones. Which would you rather have? Unfortunatly people like you and Trump want the United States to take back those $3/day jobs and start sending all our best products to wealthy Chinese consumers.

    If you knew any better, you would realize we are wealthy and they are poor because BECAUSE OF THE TRADE DEFICIT!!! They send all their good stuff to us and the only thing we give them in return is pieces of paper that come off a printing press.

    Reply
      Monty April 6, 2018

      Whatever, Jani. I think you have a reasonably good take on the markets but are a sufferer of T.D.S.

      Reply
[email protected] April 6, 2018

I think it’s just Trump’s “Art of the deal”. He doesn’t want any tariffs so on so forth. Just so-called “better” trade deals. I believe he is doing the exact same thing with NAFTA. Keep an eye on the Mexican pesos. He wants a new NAFTA (that will be a tad similar) but with a Trump stamp so he can brag about it.

I’d buy any dips now. The news is out there. Period. You said it perfectly Jani.

Reply
    Jani Ziedins April 6, 2018

    I agree. I hope this is mostly just posturing and any discounts are still buying opportunities.

    Reply

[…] I wrote a fairly critical post Thursday evening. If Trump is your guy, then you probably won’t like it. But if you want to understand what is going on and how it affects the stock market, it is a worthwhile read. […]

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