My phone lit up with alerts early yesterday evening when the President-elect threatened tariffs not only on his usual targets, China and Mexico, but added Canada to the list. Stock and bond futures initially traded lower, but while bond prices have retained most of their declines after yesterday’s stellar gains, stocks quickly bounced back and resumed their advance. Does such talk even matter?
In theory it should. The three nations mentioned have been the US’ top three trading partners annually from 2009 through 2023, combining for 42% of all US trade last year. Mexico ($798 billion in bilateral goods and services) is #1, followed closely by Canada ($773bn), with China a bit behind at ($575 bn). Tariffs would raise the costs of imports from those countries, and any retaliation would make our exports to those countries less competitive.
Supply chains might adapt in the long run, but neither prospect would benefit the US economy in the near future. Higher-priced imports would create inflationary pressures, a concept echoed by Walmart’s (WMT) management, and less competitive exports would dampen economic activity. Higher prices and lower output define stagflation, a prospect that should terrify stock investors.
Investors are anything but terrified right now. If we closed at the levels we now see at mid-morning, the S&P 500 (SPX) would be at a new record after its 7th straight up day. It’s still early, and while the FOMC minutes arriving this afternoon could offer some sobering views about the Fed’s willingness to cut rates aggressively, this is nonetheless a stock market displaying a dearth of concern.
Why might that be the case? Here are some theories:
- Short-term thinking. The inauguration is nearly two months away. Why worry now about something nebulous in the future when there are profits to be made today?
- Much can change. A general statement of intent on Truth Social is hardly the same as an executive order. When it comes to government policy, the details matter. We learned no details yesterday other than that another key trading partner might be subject to potential tariffs.
- The statement was a negotiating ploy. This could be a preemptive threat, an attempt to wring concessions from the potentially affected countries before any policies are implemented. That of course would be a best case scenario for US investors, and probably a key reason why a market that has been voting for Trump ever since the election continues to do so today.
In a holiday-shortened week with light volume and a limited number of external stimuli (the aforementioned FOMC minutes today and a bunch of economic reports including GDP and Core PCE tomorrow), the simplest thing to do is to follow prevailing trends. And if any inconvenient news can be interpreted in a favorable light, that is probably the simplest course of action when the prevailing trend is positive.
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The authors sentiment was precise and gave overall weight to the sentiments of all perspectives – I’m not sure why you interpreted it as such. I hate investing and trading but this was a good, balanced write summarizing uncertainty, not a puff piece.
Does everyone forget the market went up despite tariffs in his last term?
Canada is the primary source of petroleum imported to the United States, supplying around 52% of the country’s total petroleum imports in 2022. Canada is also a major supplier of other energy sources to the U.S., including: Natural gas: In 2020, Canada supplied 98% of the U.S.’s natural gas imports. Electricity: In 2020, Canada supplied 93% of the U.S.’s electricity imports. Uranium: In 2020, Canada supplied 28% of the U.S.’s uranium purchases. If Trump wants to tariff these products there will be a lot of pain for the working American
Agree. However, crazy executive orders actually will be issued in 2025. Enjoy the low vol now but keep cash on hand for January on for some inevitable dips.
The author totally missed the point here. Mexico is the major source of fentanyl which kills over 100,000 people in the U.S. every year. The country is controlled by drug cartels who are ruthless. Their tentacles are into all kinds of illegal business including human trafficking. The Mexican government is corrupt (allegedly complicit) in these enterprises that are harmful to our country. This has to be stopped. Now that the adults are in charge and common sense is returning, tariffs are a means of getting these people to the table. Families in our country are suffering due to the open borders in both Mexico and Canada. Money is perhaps secondary?
Honestly, let the fentanyl in. Then maybe I can get to work early for once.
I didn’t get the sense the article was “explaining away bad news.” It was speculating the reasons why the markets are not moving downward since the announced tariffs will impact our trading partners. I think my fellow citizens, rather than get into shouting matches over things that we do not really know all of the details of well enough to really even debate with thoughtful, quiet discourse to uncover and synthesize established facts, get together and enjoy Thanksgiving, a party, or something uniting, for there are probably anti-US factions eating popcorn watching all of the shouting. “we must all hang together, or most assuredly we shall all hang separately”
Who is falling for this fentanyl excuse is naive beyond ignorance
the article’s ‘noise’ on tariffs is already well-known and actually admitted by Trump so what’s the purpse of the article other than to keep the negatove going by media folk who are still in shock over the election results. Furthermore, setting for the % and dollars we do in trade with these 3 nations, let me add a fac t(s) said on bloomberg tv today. The reason mexico is maling so many cars now is that the hourly wage is $4- thats $4 in case anyone thinks it’s type error. Infact china is double that at $8/hr, so obviosly car makers in mex can afford a much higher tariff. Perhaps Trump can get some sort of 1st Amendment requirements that print media will be forced to admit a bias in its writing so the reader is not readily misled.
Michael Jackson eating popcorn right now…