Thursday, March 1, 2018

Another Potential Catalyst for Volatility -- And the Market's Definitely In the Mood For (or in need of) Volatility!

We've been pounding aplenty herein on the normalness and, frankly, the necessity (this bull market is overdue for a pause/shakeout) of present volatility! So the bottom line is that stocks remain ripe for some pain, regardless of the catalyst. I.e., the market has to be in the mood to correct for, say, a more hawkish Fed stance -- and/or something else -- to set things in motion.

Thus, should the following headline -- which I see as potentially more pernicious than the Fed nudging its policy rate a quarter-point three or four times this year (in fact, at this juncture, in the grander scheme of things a moderate tightening by the Fed is the opposite of pernicious) -- bring additional near-term pain to the market (although it may not hurt our materials exposure initially), remember it has to be in the mood for (or in need of) it:

Trump Is Said to Likely Impose Stiff Steel, Aluminum Tariffs 
  • President to announce decision on Thursday, people say 
  • Tariffs could antagonize China and hurt relations with allies

The good news (for the U.S. consumer, as well as the market), I suspect, is that the President is more stock market-centric than any I can recall. Meaning -- while it'll be interesting to see the market's immediate response to these particular measures (really depends on the details*) -- I can virtually assure you that if it (market participants in the aggregate) views this as the beginning of worse things to come (say, scrapping NAFTA for one example), it ain't going to like it!, and it'll be difficult to credibly blame the ensuing selloff on other factors, or people.

That said, perhaps Wilbur Ross (the embattled Commerce Secretary who's been shamed by the President to come up with something, and this is it!) will be the next to be shown the door.

*In terms of the details, two things: 

1. President Trump has been promising huge protectionist measures since day 1 of his campaign. So anything that falls short in severity, relative to the promises, may not provoke a negative reaction (could do the opposite in fact).

2. This is something most, if not all, presidents have done -- Obama, Bush and on down the line. For example, President Obama, among other things, via tariffs had the U.S. consumer paying up for solar panels and car tires (thus stealing revenue from the areas where American industry excels and giving it to politically-favored, less competitive, industries), and the stock market did quite well under his tenure. I.e., as we've preached here ad nauseam, general bear market conditions must exist for a bear market to occur, regardless of what pundits might point to as its catalyst. At the moment we're simply talking corrections.

Long-time readers know it's taking all I got to keep from ranting for volumes on the ills of protectionism!!

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