The latest round of U.S./China tariffs have taken effect, causing both the S&P 500 and Dow to sink yesterday, according to numerous analysts and experts. Trump’s tariffs on $200 billion worth of Chinese goods kicked in (along with China’s increased tariffs on American imports), allegedly leading to a drop across 7 of the 11 S&P 500’s major sectors.
The so called “experts” claim that investors, who have largely ignored all the tariff talk these last months, are finally realizing that neither China nor the United States is willing to back down. This is abundantly clear, say analysts, when you look at what happened during yesterday’s trading session as the market started to slide.
If you’d listened to anything the media has spit out over the last 24 hours, you’d think that the market is caught in a tailspin, and the end is nigh for equities in the United States as Donald Trump stubbornly tightens the screws on the Chinese.
And while yes, the market certainly did drop yesterday…
…It’s not as bad as everyone is making it out to be. In fact, it’s not even close.
The media is acting like Trump has sacrificed the American markets in order to gain leverage over the Chinese, and they claim that he’s using our outstanding economic indicators to grow overconfident. By continuing to escalate the situation with the China, he’s weakening the United States – or so they say.
Well, are they right? Are the “experts” on top of this one? Moreover, how can we find out if they’re portraying all of this correctly?
Thankfully, there’s this fantastic resource we can use to cut through all the malarkey that we’re being fed about equities right now. It’s something I’ve grown quite fond of using over the years, and I think you’re very familiar with it as well.
Care to hazard a guess?
If you’ve read anything I’ve written in the past, you know that I only care about one thing when it comes to evaluating current trends or future movement. That would be one thing, and one thing only:
Because the market doesn’t care about salacious headlines. It doesn’t care about piping hot takes from “analysts” calling for the next big crash, and it certainly doesn’t care about journalists that have unilaterally decided that tariffs will be our undoing.
The market is what it is, and nothing more.
So, let’s see what has everyone freaking out. I want to examine, first hand, the massive, disastrous drop that S&P 500 investors suffered through yesterday:
Woah, woah, woah. Wait a minute.
Am I seeing this correctly?
Is THIS what has analysts up in arms?
I don’t know about you, but a drop that small (0.35% for the S&P, 0.68% for the Dow) is hardly a cause for major concern. More than anything else, it just looks like a bit of a sell-off from a new all-time high.
I mean, come on – do people really expect the market to ALWAYS go up?
This has been a record setting bull run, but even American equities need to take a breather now and again.
Sure – I’ll concede that the recent tariffs may have changed market sentiments slightly. But ultimately, this move down is just a small part of the continued uptrend. A quick glance at the S&P 500 over the last few weeks shows exactly that:
As you can see in the chart above, the S&P 500 actually bounced off a level of support that was set back on August 29th, when it made another new all-time high. Resistance was broken just a few days ago on September 20th, and a sell-off occurred back down to that support level from August 29th.
Because of that, it wouldn’t surprise me at all to see a recovery over today’s trading session, as investors snatch up some low hanging fruit, grabbing stock in premium companies for discount prices. Of course, the media will act incredulous, bewildered by the fact that equities are bouncing back while the newly announced tariffs still linger – and they will likely take investors to task for being overly confident, just like President Trump.
On the other hand, we could see a bigger sell-off to a lower level of support, but the whole movement will be framed by the market itself, NOT a poorly constructed narrative from the press. Whatever happens, though, I can guarantee you of one thing:
Investors are going to decide where the market is headed, and that will be driven by the strength of American corporations, who’s continued growth is largely unrelated to Chinese imports.
So go ahead, Mr. President, tighten the screws. Our market has shown in the past that it can handle a bit of pressure, as long it’s in support of long term prosperity.