President Trump’s double whammy of threats against Apple (AAPL) and the European Union was an unexpected blast to global markets. Opening more fronts on the trade war were exactly what traders hoping for a quiet end to a pre-holiday weekend did not need, and it clearly caught most off guard. I’m sure that plans of many in the US to try to leave work early were dashed. It’s not clear what prompted these statements, but they are emblematic of the type of volatility that we should always be prepared for.
For those who missed the news, the following blasts arrived on Truth Social between 7 and 8AM EDT. The first set was directed squarely at AAPL, threatening a 25% tariff on iPhones that are not made in the US:
“I have long ago informed Tim Cook of Apple that I expect their iPhone’s that will be sold in the United States of America will be manufactured and built in the United States, not India, or anyplace else,” he wrote on Truth Social.
“If that is not the case, a Tariff of at least 25% must be paid by Apple to the U.S.,” the president wrote.
Then, less than an hour later, the President suggested that all goods from the EU would be subject to a 50% tariff as early as June 1st, less than two weeks away:
“Their powerful Trade Barriers, Vat Taxes, ridiculous Corporate Penalties, Non-Monetary Trade Barriers, Monetary Manipulations, unfair and unjustified lawsuits against Americans Companies, and more, have led to a Trade Deficit with the U.S. of more than $250,000,000 a year, a number which is totally unacceptable,” he wrote in a Truth Social post Friday morning.
“Our discussions with them are going nowhere!” Trump wrote.
“Therefore, I am recommending a straight 50% Tariff on the European Union, starting on June 1, 2025.”
This is the type of news that causes market inertia to be disrupted. While market momentum is not the same as physical momentum, I’ve often asserted that Newton’s First Law of Motion broadly applies to markets as well:
An object at rest remains at rest, and object in motion remains at a constant speed and in a straight line unless acted upon by an unbalanced force
We’ve already seen that tariff pronouncements disrupt the market’s momentum on various occasions. And we’ve also seen the market shrug off most of the perceived effects of them. As I type this, we are seeing traders doing their best to rally stocks off their lows. The chart below shows how pre-market ES futures meandered overnight, then plunged twice in the pre-open (the second rather precipitously), then bounced just ahead of the open. Since then, we have generally tried to grind higher, though there is still some ground to cover:
ES June Futures, 1-Day, 1-Minute Candles
Source: Interactive Brokers
Perhaps traders are keeping yesterday’s late action in mind. We saw the S&P 500 (SPX) grind higher all afternoon before giving back all its gains shortly before the close. It appears that traders were not eager to go home with long positions – something that worked well for the sellers today:
SPX 2-Days, 2-Minute Candles
Source: Interactive Brokers
Although there was plenty of market moving news this morning, it appears that there are some traders who will try to exploit the light volume to seek trading opportunities from the long side. “Don’t short a dull tape” is a popular adage for a reason. Remember though, that while this afternoon might seem a bit dull after this morning’s fireworks, as we noted recently, there is no shortage of economic data and earnings reports coming our way in the coming short week. If you’re in the US, enjoy the peace and quiet of the Memorial Day weekend, and take some time to reflect upon the sacrifices that brought us that holiday.
Join The Conversation
For specific platform feedback and suggestions, please submit it directly to our team using these instructions.
If you have an account-specific question or concern, please reach out to Client Services.
We encourage you to look through our FAQs before posting. Your question may already be covered!
Leave a Reply
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
I think we would do well if we think of ourselves as the mark in a 3 card Monte game. For the next three and a half years, whenever the administration finds itself in a difficult situation which it doesn’t want to confront in a direct manner, it will turn up the heat on a pot of “new crisis” to distract us from the previous problem. Yes, it doesn’t solve the original situation, but it keeps the easily distracted from watching where the jack went, while the con yells “Next question” or denigrates the reporter saying, “Watch the jack!” For all the bluster, not much will be accomplished on the trade front. Trump has shown to the world that he will fold when the reality hits because he can’t take a real increase of domestic prices, or empty shelves, or a hike in interest rates, or a fall in the stock market, or finally a decrease in the quarterly earnings in the companies owned by his most fervent supporters. Remember the last time, little of “the wall” was built, no alternative to “Obamacare” was advanced, for all the cruelty of the “cages”, immigrants kept coming. It is important to pay attention to the long term and not to get distracted or frighten by the day to day polemics of what will be seen by history as a short term delusion or the beginning of the end of the American century.
Trump is living rent free in your head. Have some self awareness instead. Whatever your problem is, it’s usually your own fault, not the boogeyman in your mind.
1) Argumentum ad Hominem. 2) Blame the victim, anything else?
TDS openly displayed along with outright lies and twisting of truth. Must be rough wanting so badly for President Trump to fail so the American people suffer. I pity you.
@spshariro, I agree 100% with you. Trump is just a mini-poodle barking. And now everyone knows it!
Whether you support Trump or not, Shapiro is correct = Trump has shown to the world that he will fold when the reality hits because he can’t take a real increase of domestic prices, or empty shelves, or a hike in interest rates, or a fall in the stock market, or finally a decrease in the quarterly earnings in the companies owned by his most fervent supporters. The truth is in the actions: 90 day pause when rates climbed, essentially eliminate China tariffs over a weekend conversation and now he RECOMMENDS a 50% tariff on EU. Regardless of policy, his dealmaking style backfired on this one and he has been exposed as a paper tiger. The question now is how far country leaders will push knowing that Trump is all bluff. Apparently, the EU is prepared to push harder than most. Will Trump’s policy help or hurt the US either short term or long term- who knows? Bottom line is that there will be no significant tariffs at any point even if it means constant 90 day extensions. It doesn’t matter what Trump or anyone else claims. As they say, actions speak louder than words. Trade accordingly.
Right on
Trump is burying the US in a hole so deep that there will be no way out. The US is losing everywhere: science, democracy, alliances, credibility, dollar, inflation, possible recession, debt increasing out of control, health care, measles, stock and bond markets, education, crashing tourism… Immigration has two sides. Too much is bad, too little means not enough cheap labor for several industries, especially farming. So, in summary, almost beating Truman as the worst president in the US history. You deserve it.
One of my favorite things you have ever written, yet it was so subtle, it went over most people’s heads: “…by an unbalanced force”