Okay, the stock market has been given some reason to think a trade deal with China won't be achieved as soon as it had previously hoped. The stock market, however, is a long way still from thinking a trade deal won't get done at all.
The stock market will go down big, and stay down for a while, if a trade deal with China falls by the wayside and higher tariff rates become entrenched. The rebound off yesterday's lows was proof that the market isn't expecting that to be the outcome.
So, why is the market indicated lower this morning?
U.S. Trade Representative Lighthizer and Treasury Secretary Mnuchin stirred the pot of uncertainty with an acknowledgment that China reneged on previous commitments in trade talks. Consequently, the tariff rate on $200 billion of imported Chinese goods will increase from 10% to 25% on Friday, as President Trump suggested.
Not surprisingly, there are reports this morning that China is planning retaliatory tariffs. There are also reports, however, that Vice Premier Liu He will lead a Chinese delegation to Washington this week for trade discussions.
Basically, then, global markets are in limbo when it comes to assessing this trade factor. Recent developments certainly have a negative slant, so it seems quite reasonable that a hot market (in the case of the U.S. stock market at least) would cool off a bit.
Consider for a moment that the S&P 500 was up 17.5% for the year when President Trump sent his weekend tweet. In turn, it was up 4.0% since the end of March alone, paced by a 9.0% gain in the financial sector, a 6.5% gain in the information technology sector, and a 6.2% gain in the communication services sector.
This market, which was within a whisker of an all-time high, was hot -- probably too hot for its own good with valuations stretching past historical averages and every bit of bad news dismissed as a temporary blip on the way to a much better environment in the second half of the year.
All the trade headlines have done is give the market a legitimate excuse to take its temperature, which it might have done anyway absent the trade headlines.
In any event, the market is indicated to open lower again today, ostensibly on the velveteen view that Mr. Lighthizer's tariff clarification has made President Trump's tariff threat real.
The S&P futures are down 18 points and are trading 0.7% below fair value. The Nasdaq 100 futures are down 57 points and are trading 0.8% below fair value. The Dow Jones Industrial Average futures are down 167 points and are trading 0.6% below fair value.
Given yesterday's trading experience, it's safe to say market participants aren't necessarily quaking in their boots at the sight of the futures indication. Presumably, many are expecting another buy-the-dip recovery effort, which creates a risk for the market in itself if it doesn't materialize.
That bridge will be crossed if the market gets to it. For now, though, the trade angst is like the troll beneath the bridge who would have jumped out anyway to slow the market in its hot tracks.