Trade War Ends Before It Begins – Ep. 354

Solid Gains Today in the Major Stock Market Averages

We had solid gains today in the major stock market averages; the DJIA putting in the largest percentage gain, just over 1.2% or 298 points.  I think at the highs, the Dow was up 370 and change, so a strong day, S&P, NASDAQ also up not quite as much calculated as percentages. The Russell 2000 was not up as much as the other averages but it is at a record high again today.  I think it’s the Russell 2000 that ultimately could make the biggest percentage drop once stock market traders start to figure out what’s actually going to happen.

A Lot of Saber Rattling and Not a Lot of Fencing

But in the meantime, today, they were celebrating the cease fire in the trade war.  Although, I don’t think I should call it a cease fire because nobody actually fired a shot.  It has been more of a war of words than a real conventional battle, I mean there was basically a lot of saber rattling and not a lot of fencing.  But I think what happened today is that we callee a truce.  Both sides sheathed their sabers and agreed that there is not going to be a war.

The Markets Have Not Adequately Priced in the Cost of a Trade War

And I think the markets were relieved, and so we got a relief rally based on that good news.  Although I don’t think the markets sufficiently priced in the cost of a hot trade war.  I know Donald Trump said, “Oh, trade wars are easy to win.” Believe me, if they were easy to win, we would have waged one.  They’re not easy to win.  I don’t think the markets really discounted how bad it would have been had the cold war turned hot.

Peace Dividend

Nonetheless, the fact that it wasn’t going to happen – I think most people would agree that a trade war would be bad, and if now there is going to be trade peace, well there is a peace dividend and so we got that today.