China Issues $50 Billion In Tariffs & Stocks Rally?!?
The stock market had a terrible morning because China announced $50 billion in tariffs per year which effect 106 U.S. products including soybeans, whiskey, cars, and chemicals. This 25% tariff comes on the heels of Trump’s list of Chinese imports which he wants to target to stop what he feels are unfair trade practices. It’s amazing how the market reacted to the tariffs because this would have been a massive disaster if this was announced 4 weeks ago. Stocks cratered last month on just $3 billion in tariffs issued by China. The uncertainty was how much greater the new tariffs were going to be because China said it was waiting for Trump to give specifics before announcing what they would retaliate with.
The Dow was down over 400 points in the pre-market trading and fell 436 points at the low on the day at 9:50 AM. From the morning until the close, stocks rallied as the Dow closed up 231 points. The S&P 500 was up 2.49% from the low on the day which was 2,580 at 9:35 AM. This was an important rally because it looked like the market was finally going to break through the lows of its range. The media had a confusing day. In the morning there were reports that the market had jitters about the trade actions and then the media reported that the market got over the worries after stocks went up.
It’s weird to report that the market changed its mind. Ultimately, I think this up move is a representation that the market understands these squabbles are the beginning of negotiations. It’s like if two parties say absurd prices at the start of negotiations. It seems as though the market considers these tariffs to be the worst case scenario, while the best case is none being enacted. Technically, the worst case would be an all-out trade war, but that’s no longer realistic. For some reason, it took the market a few weeks to understand that America and China need to work together; therefore, they won’t hurt each other. The pivotal change in market sentiment occurred when Trump used the steel and aluminum tariffs as an opening point for negotiations. These squabbles with China are all leading up to the point where Trump meets with Kim in the next month.