What started as a slightly green early morning for futures ended in a disastrous week for United States financial markets. Currently the S&P 500 has experienced a fall of over -178 points or a -5.68% drop in a month with the weekly fairing a loss of -2.5% it’s clear the market is uneasy.
Now lets take a look at what had led to these events that triggered the market sell off.
The last day of our Standard & Poor’s Index market highs was July 26th, 2019. July 26th, 2019 was also the day the volatility index started to turn so it’s safe to say that this is when things started to look questionable.
The first tweet comes as a boast, President Trump talks of GDP rising 2.1% but noting the “heavy weight” of the Federal Reserve he claims is wrapped around “our” neck.
The second tweet a bit more concerning as it directly aims at Apple
“Apple will not be given Tariff waiver, or relief, for Mac Pro parts that are made in China.” While individual segment analysis has been stripped from Apples earnings reports we can no longer see exactly the impact to which this may affect Apple directly.
Now here is where the ride gets a bit wild. After July 26th we’ve seen upward motion in the volatility index (VIX) and downward motion in the financial markets everywhere. After flurrying more than 12 tweets in a single day at Baltimore’s democratic representative Elijah Cummings as a backlash for him speaking out against Trump’s handling of the boarder situation, things started to slip out of hand.
Trump takes a jab at the Fed stating China and Europe’s willingness for lowering interest rates to allow for easier economic stimuli, yet again Trump shows his distain for the Fed’s unwillingness to lower interest rates. An odd switch up from disliking to idolizing and switching the enemy to the United States itself.
It Gets Worse
Now Trump has stated China “knows how to play the game” citing that the United States is currently at the disadvantage when it comes to negotiations, as for enemies President Trump has now turned his focus on his unwilling Fed and blames them for raising to early and too much claiming a small rate cut is not enough.
Now The Poking Begins
After flip flopped talks with Chinese leader Xi JingPing, Trump takes a vastly different approach from the rather friendly dialogue that has been spoken between the two.
Trump claims the problem with China is “they just don’t come through” as agricultural product talks fall through, Trump goes on to compare it to the strength and resilience of the United States and its financial markets.
July 31st, 2019
The Fed cuts rates for the first time since 2008 and the market reacts with fear .
Trump responds to the Fed
“What the market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world…”
I’ve repeadtly stated time and time again that this market growth has been artificial and is all in an attempt to compete on a global level. When you look at places like Israel or China, they offer a certain government interest for tax reduction programs. In Israeli’s case, ownership of the entity and it’s production would result in a near 0% corporate tax rate. By doing this there is incentive for domestic production and also increases profit margins which can effect many things. President Trump has offered companies to come back to the United States and or to keep production here in exchange for lower income tax brackets. While this may be nice for some countries short term, long term most executives are awaiting Trump’s departure and hoping someone new will not follow the same narrative so they can keep production abroad. The matter of fact is the stock market performance will heavily weigh on the re-election of President Trump, the chances are if he can end his term with large gains in the market, we will see another 4 years of lowered corporate tax rate. However, I believe personally if he fails to be re-elected will we see these artificial cuts and surges in the market roll back.
Then there is this curve ball
Aug 1st, 2019
Trump raises another 10% on Chinese goods
They had constructive talks? Trade talks have been ongoing for several months with no avail but higher taxes that the people and only the people will end up paying for. Trump also tries to put the blame of drug use on China and negates to focus on homelessness or the causes of drug use but rather points a finger to create a public enemy. Trump says the future of the two countries “will be a very bright one!”
The Rocket Man Returns
Aug 2nd, 2019
Then an “old issue” rehashes. North Korea launches off missiles. Remember when Trump said he would “totally destroy” North Korea? Well here was that fierce man’s response.
Yes that is right “I may be wrong but” then goes on to say “Chairman Kim has a great and beautiful vision for his country” Chairman Kim has labor camps, killed Otto Frederick Warmbier after keeping him prisoner because the United States college student took a sign from an airport. Has famine in his country, yet Trump has the audacity to shake the guys hand, call him smart, and a “friend”. Yes Donald Trump, you are wrong.
But Don’t Worry! Important Things First
Now if you think Trump is getting a bit distracted don’t worry, he has his priorities in place.
Yes that is right, after rapper A$AP Rocky was arrested in Sweden for causing bodily harm to an individual (His group jumped someone after they claimed to have been followed) but Trump is there to make everything OK for people who cause harm to others. (No hate to ASAP but do the crime do the time)
Then China Hits Back
After the yuan sunk to 7 against the US dollar, the lowest level in 11 years, China was deemed as a currency manipulator by the United States. What is the tactic here? China devalues its own currency. By devaluing the yuan, China can mitigate damage on the forced tariffs imposed by Trump. This creates bigger problems for consumers; investors; and everyone really.
Then right on time China announces that they will suspend the purchase of U.S. Agricultural goods.
Then there was silence.
For over one week the markets slowly started moving back upwards with a gain of 2% in the Standard & Poor’s 500 and the VIX collapsed and it looked as if the tensions of the market were easing.
United States Pushes Back Tariffs Aug 13th, 2019
In a rather unexpected move the 10% tariff that would include mostly computer and technology goods that was levy in September would be moved to December “the USTR is removing certain products from the scope of additional tariffs, citing “health, safety, national security”
Trade talks were renegotiated to happen in two-weeks however in that time span Donald Trump said days before the meeting that he didn’t care if the trade talks fell through as he still felt America was in the better position to make a deal.
Days Before the Supposed Meet
It’s August 23rd, 2019 China has just announced a new tariff on U.S. agricultural and automotive goods on over $75 Billion from the 5% range to the 10% range. This was yet another escalation in a now very elongated brink of a real trade war. The official reasoning for the new tariffs on American goods was for violating “the consensus reached by the two heads of state in Argentina and the consensus reached in Osaka”.
How does Trump respond?
President Trump said “Our great American companies are hereby ordered to immediately start looking for an alternative to China” It’s clear President Trump has a distain towards China but then he post this tweet.
Donald Trump said something the markets really didn’t care for, he said “Who is our bigger enemy, Jay Powell or Chairman Xi?” Now Trump has made it clear that he believes the internal threat to his power is just as great as China as a whole.
But it Doesn’t End There
Donald Trump fires back with a tariff increase of his own.
President Trump moves the 10% tariffs to 15% on 300 Billion, he also raises the 25% to 30% on an additional 250 Billion.
Meanwhile the Markets Did This
SSE Composite Index
So who is really winning? Does anyone really win from trade wars?
Because so far over 500 Billion dollars have been shaved from the market amidst the fear looming and that doesn’t account for the losses China has suffered as well.
It’s also important to note that according to John Bogle, we’ve experienced an inadequate stock market to GDP growth of nearly 10-1. In short this means those who hold large amounts of marketable securities have made a lot while the average uninvested American reliant on income from a job hasn’t nearly experienced the same growth in the wealth that the investor has.
What is yet to come is mystery, it may be to even Trump himself.