It’s Not About Trade Wars

The story of the day may be trade wars, but it’s not about trade wars.  It’s about interest rates.

The trade wars may be great media fodder for political theater, but the economic impact is anything but known.  First, one has to determine if there even is a trade war (and Trump has mastered an almost Greenspan-esque way of keeping the media guessing at his intentions).  Second, one has to determine if said trade war will have any material impact on economic activity.  Right now what we have is a whole lot of noise but not a whole lot of data.

It’s the story behind the story that matters.  Will economic growth continue, and how will the Fed shift monetary policy?  The expectation is for a rate hike this Wednesday.  If history repeats itself, we’ll see some market volatility intra-day, but we’ll still find a way to grind higher.

It appears the 2780 level is a first order of resistance for the SPX while waiting on the Fed.  Based on the most recent market trend, it’s likely this resistance falls.  The markets seem to have found some recent traction as they continue to retrace toward their January highs.

For the week, look for 2780/2800 as resistance areas.  Support should be around 2750.  And the language out of the Fed will likely be the key for this week.  Until the data says otherwise, keep doing what you’re doing…

As an aside, many are watching the summit in Korea wondering how this may affect the markets.  While this may matter in terms of politics (particularly if Trump ends up successfully brokering a reunification and denuclearization), from a market perspective, this is likely to be a gift.  If Trump is successful, the markets probably rally on the news (as it’s good for the global market bringing a new player to the table).  If the deal fails, it just means we keep doing what we’re already doing.  It’s difficult to imagine a scenario where this leads directly to missiles getting lobbed back and forth — that’s the down-side scenario — but it seems pretty unlikely at this point.

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