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Markets Shrug Off Trump's 'Tariffs Are The Greatest' Tweet

Tuesday,July 24, 2018, 10:30 AM, EST

  • NASDAQ Composite +0.98% Dow +0.82% S&P 500 +0.78% Russell 2000 +0.16%
  • NASDAQ Advancers: 1186 Decliners: 911
  • Today's Volume (First Hour) +7.9%

Stocks moved above 25,000 on the Dow, helped by earnings reports which for now are overwhelming the tariff headlines. Alphabet blew away earnings estimates and traded $50+ higher (+4.5%) while HOG, LLY and BIIB joined the companies that have beat on Q2 earnings thus far. However HOG lowered guidance for the year, citing tariffs. This is a theme for the market - balancing strong current earnings against the intermediate/longer term effects of tariffs. China's actions to increase infrastructure spending and take on other measures to fuel growth were also perceived as helpful to the "risk on trade." Materials, Energy and Tech stocks are outperforming, with safety stocks like REITS, Utilities, and Staples lagging. Small caps are underperforming today (see below).

  • Trump's tweet that 'Tariffs are the greatest" does not seem to be impacting markets. While silly on its face, a more complete read of the entire tweet seems to suggest that Trump is once again using tariffs and their threat as a negotiation tool: "Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It's as simple as that - and everybody's talking! Remember, we are the 'piggy bank' that's being robbed. All will be Great!" Hopefully "everybody taking" means successful negotiations, not retaliatory damage. The market is getting a bit used to the bluster. For today, the focus is on Q2 earnings instead.
  • The WSJ reported that while small-caps have outperformed as investors have sought a safe haven from trade issues, some analysts warn that strong corporate earnings and economic data are masking the negative potential impacts from tariffs . The article notes that at least half a dozen small and domestically focused companies have said recently that tariffs on steel, aluminum, and other China-sourced products threaten to disrupt their businesses.
  • S. house prices rose in May increasing 0.2% from April , according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI). This is below the consensus increase of a 0.3% rise as polled by economists for Bloomberg. April's prices were revised up to 0.2% from a reported 0.1% increase. According to the FHFA, "the monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From May 2017 to May 2018, house prices were up 6.4 percent." The HPI measures the change in the value of single-family houses in the U.S. as a whole, in various regions and in smaller areas.
  • Don't look now but the 10 year Treasury yield is creeping back towards 3% again . Yesterday's Monday's spike in the 10-year Treasury yield ended a period of calm in the U.S. government bond market: Over the past two trading sessions, the 10-year yield rose from 2.84% to 2.96%. Technical factors and steepening in European and Japanese yield curves may be contributing to the higher rates here.
  • Outflows of U.S. mutual fundsand ETFs in June totaled $22.1 billion, the greatest amount in nearly three years. Morningstar (NASDAQ: MORN) stated in its latest report that the bulk of the outflows were from U.S. equity, with $20.8 billion of outflows, $17.1 billion from active funds and $3.7 billion on the passive side. Outflows from international equity funds totaled $9.8 billion, the most since 2008, largely due to emerging-market outflows. Only taxable-bond and municipal-bond funds had inflows, $15.5 billion and $2.6 billion, respectively. According to the report, "June capped the fourth-worst first half for U.S. equity flows over the past 10 years; only 2015 and 2009 were worse. The bulk of the net outflows were from large-cap funds, with $19.4 billion leaving large-blend funds alone. This was also the largest monthly outflow for large-blend funds in at least a decade."

Technical Take:

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Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.