Thursday, September 26, 2019

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Trade

Saying trade news moves markets isn't breaking news. Market declines in May and August were the result of heightened trade tensions. Rebounds in June and September followed as tensions eased.

This is a pattern that has repeated on daily, weekly, or monthly cycles for the better part of two years now.

But after two of the most eventful days of Donald Trump's presidency, it is worth reiterating what does and does not hold sway with investors.

Because this market is still all about trade. First, second, and last.

On Wednesday, stocks rallied after several encouraging pieces of trade news. Near 10:00 a.m. ET, Rep. Richard Neal (D-MA) said that work to pass the USMCA would not be impacted by impeachment proceedings. About 45 minutes later, Trump said that there could be a U.S.-China trade deal sooner than people think. And early afternoon on Wednesday, the administration announced it had reached an initial trade agreement with Japan.

The S&P 500 finished Wednesday's session up 0.62% with the rotation back into cyclical sectors like banks, industrials, and consumer discretionary stocks continuing apace. Investors, by and large, still seem convinced the U.S. economy will not enter recession and that an impeachment inquiry into the sitting president will not change this story.

Now, Tuesday's market decline was broadly linked to news that House Democrats would announce an impeachment inquiry. But even this slide was somewhat curtailed when Trump tweeted on Tuesday afternoon that a record of his call with Ukrainian President Volodymyr Zelensky would reveal a “totally appropriate” call.

On the impeachment issue, it seems markets staked out a clear and early willingness to look past a political nightmare.

My colleague Sam Ro noted late Tuesday that the market's past experience with impeachment proceedings against presidents in modern times have seen stocks driven by the economy and not the political environment.

During the Nixon episode in the '70s, oil shocks, stagflation, and the deepest recession that had been seen in decades drove stocks lower. Clinton's impeachment drama in the '90s came alongside Russia's default, the implosion of Long Term Capital Management, and the final years of the tech bubble.

And while financial market analysis that works to divorce itself from politics can at times be reductive, what the market's behavior during Nixon, and Clinton, and this week makes clear is that while the words sound the same, policy and politics are not the same thing.