TREND ALERT: Trade Wars Won't Sink Markets. Cheap Money Will Keep Them Rising

9 May 2019

Trade Wars Won't Sink Markets.
Cheap Money Will Keep Them Rising

KINGSTON, NY, 9 MAY 2019—It never ends. For over three years, the nearly constant refrain from the business media for equity market pull backs have been "Trade Wars." Rarely, however, have they attributed the record breaking S&P and Nasdaq to trade initiatives because, in fact, it’s earnings, stock buy backs and low interest rate/cheap money that keeps the markets rising.

Yes, markets across the globe are falling this week following President Donald Trump’s threat to impose 25 percent tariffs on some $200 billion worth of Chinese goods and an additional $325 billion worth of Chinese goods would also be hit with 25 percent tariffs if a deal was not struck.

However, we maintain our August 2018 trend forecast: "A full blown trade war will not occur. We concluded that Trump's imposed tariffs, and threats of escalating them, are characteristic of his 'Art of the Deal' negotiation strategy."

The U.S. economy, the largest in the world, is also the strongest. And considering the size of the overall U.S. trade deficit, which hit a record $621 billion in 2018, we forecast China and other nations will negotiate with the U.S. to even the grossly imbalanced trading field rather than destroy their profit streams.

Further, the media noise that U.S. tariffs are responsible for China's slowing economy is unsubstantiated since the current U.S. tariffs cut only an estimated 0.8 percent from China's Gross Domestic Product last year.


With the 2020 U.S presidential election campaign revving up, the economy will emerge as a core issue. Indeed, although President Trump’s approval rating is at 46 percent (around the same as Obama had at this point during his presidency) his rating on his handling of the economy has hit a new high at 56 percent. Thus, since winning another term is a Trump priority, just as the administration may have pressured the U.S. Federal Reserve to hit the pause button on interest rate hikes for 2019, which triggered equity market spikes… as evidenced by current administration pressure to lower rates at least 50 basis points, we forecast should equities dramatically decline, the Fed will lower rates even more.

And on the trade war front, which will also be a 2020 campaign issue, Democratic Presidential Reality Show candidate Bernie Sanders is calling for even tougher trade policies, denouncing Trump “to keep your campaign promises," and “Go back to the drawing board on NAFTA … the treaty that Trump re-negotiated with Mexico will still allow companies like General Motors to send our jobs to Mexico.”

TREND FORECAST: Remember “The Golden Rule.” If trade wars were likely to significantly impact the global economy, the price of gold, the ultimate safe-haven asset, would be rising. Instead, gold has been trading essentially flat slightly above $1,280.

Thus, we maintain our forecast that gold's downside is $1,200 per ounce, which has proven accurate, and that gold would have to break above $1,450 per ounce to leap back to the $2,000 range it neared in 2011.

All comments

Other Trend Alerts
17 Apr 2019

TREND ALERT: The Trump Market Bump. Will it Slump? Follow the Trends

KINGSTON, N.Y. 17 APRIL 2019—What a difference a year makes. In response to the U.S. Federal Reserve’s 2018 aggressive interest rate policy, equity markets across the globe tanked. The Dow had its worse December since the Great Depression, but following the Fed’s January U-turn and signals that there would be no rate hikes until 2020, the Dow Jones climbed 13 percent and the S&P 500 rose 15 percent this year. Read more

3 Apr 2019

TREND ALERT: The Trump Bump: How Long Will it Last, What will Drive it Down?

KINGSTON, NY, 3 APRIL 2019—Happy Equity Market Days are here again! The S&P 500 has kicked off its best start to the year since 1998. Over in China, the Shanghai stock market has surged more than 27 percent year-to-date. Globally, equity markets hit a six-month high. Read more

27 Mar 2019

TREND ALERT: Fed Can’t Wait: Needs to Move Now

KINGSTON, NY, 27 MARCH 2019—Beyond the accelerating global economic slowdown, we forecast a weakening U.S. Gross Domestic Product and lower corporate earnings will require the U.S. Federal Reserve to lower interest rates now before economic conditions markedly deteriorate. Read more

20 Mar 2019

TREND ALERT: Cash-In on Cannabis. We Called the Trend, Here's What's Next

KINGSTON, NY, 20 March 2019—It’s bigger than the legalization of marijuana that politicians are blabbing about and the business media are promoting to cash in on the tax and investment potential. It’s the full line of cannabis and hemp products that will catapult the industry globally into a trillion dollar industry within a decade. Read more

6 Mar 2019

TREND ALERT: Trade Wars, Stocks, Real Estate and Gold. Winners and Losers

KINSTON, NY, 6 MARCH 2019—Despite the near daily proclamations from the mainstream media of the United States launching a “trade war” against China, there is no “war.” Read more